Crude prices got an unexpected boost from a surprising Bank of Japan decision to shift their policy which sent the dollar tumbling. Oil should be higher, but China’s COVID surge has energy traders refraining from betting on a quick complete reopening. The oil market has tremendous support at the $70 level as the US will likely be refilling the Strategic Petroleum Reserve for a while.
The outlook for China’s crude demand will hinge on how quickly China can bolster up its health care system and over how bad this wave gets. It is hard to believe that if the COVID situation deteriorates much worse than feared that Beijing might have to deliver a U-turn over its policy.
Gold got an unexpected present from the Bank of Japan. Gold is benefitting from a weaker dollar after the BOJ tweaked their curve policy, which signaled they are nearing the end of its ultra-easing monetary policy stance. It is rare to see gold perform so well when global bond yields are surging, but this widening of Japan’s yield curve band signifies that we could have a peak in the dollar put in place.
The dollar might be in the house of pain for a while and that should be good news for bullion. Holiday trading volumes might disrupt this rally but for now it seems like gold has definitely got its groove back.
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