Oil follows risk appetite, gold rallies again

Oil

Oil is taking its cue from the broader market.  The short-term market growth risks sent crude prices lower to key technical levels (50- and 100-day SMAs) that triggered technical buying.  WTI crude seems like it is forming a trading range here and a further consolidation seems likely until China slowdown concerns disappear.

United Arab Emirates Oil Minister Suhail Al-Mazrouei’s comments that OPEC+ should stick to their output plan suggest the oil market will still remain in deficit.  With US stockpiles expected to continue to decline, the OPEC+ supply-side outlook supports a gradual balancing of the oil market.  Crude prices will likely remain very supported till the end of the year.

Gold gains ground ahead of FOMC meeting

Gold’s rebound continues as mounting market risks have investors fleeing to safe-havens.  Gold is rallying ahead of the FOMC decision as investors start to price in little chance of a hawkish surprise.  Interest rate hike expectations have come down over the past five months and now the market no longer expects two hikes but one by the end of next year.

This should be an easy FOMC meeting as the Covid Delta variant has triggered a soft patch of economic data that will allow the Fed to affirm that tapering will happen later this year.  Expectations are for the Fed to make a formal taper announcement in November, possibly starting in December at a pace of USD 15 billion per month.  The Fed has continuously signalled to the markets that that tapering does not start the countdown for rate hikes and they will try to make that point clear again.  Rate hike expectations could come as early as November 2022, but the second half of 2023 seems more likely.

Gold’s rebound should start losing steam soon, with prices facing strong resistance from the USD1,800 level.

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