Oil slips on China, gold steady

Oil pares gains ahead of OPEC+ meeting

Oil prices are off 1% on Tuesday, weighed down by the Chinese PMIs even as broader risk appetite remains positive. China is the world’s largest crude importer so the weaker surveys are naturally a drag, especially given the broader growth concerns beyond the, now contained, outbreak.

It’s also worth noting that WTI prices rebounded more than 12% in the week to yesterday and came within a whisker of USD 70 before pulling back, so there’s probably an element of profit-taking to the move. Particularly when you consider that some of the gains were attributed to Tropical Storm Ida last week and operations are already being restored.

Next up is the OPEC+ meeting on Wednesday, with traders looking for any indication that the group is going to alter the pace of tapering cuts. It would be a surprise if they do anything at the moment, despite pressure from the White House, given current price levels, demand and uncertain outlook.

Does gold’s rally have legs?

Gold was one of the winners from Powell’s dovish comments on Friday, seizing on lower yields and a weaker dollar to break back above USD 1,800 and hold comfortably above before paring gains on Monday. It’s started today on the front foot once more but remains a little below USD 1,833, the next big test for the yellow metal.

A break beyond this level would take gold back above its July highs where it failed repeatedly last month and could generate some real bullish momentum. This would come despite the Fed still planning to taper this year because of Powell’s insistence on the lack of a link between tapering and rates.

Whether that means the gold rally is sustainable is another thing. Tapering may not mean rate hikes will follow soon after but they won’t be too far away. The economic recovery in the US may slow in the coming months as a result of the delta strain but it’s still very much on the right track. That may limit gold’s upside over the medium term.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.