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Oil climbs as risk sentiment rises

Oil prices are surging as risk appetite runs wild following disappointing economic data that solidifies the view that the Fed won’t be slowing down its ultra-accommodative stance anytime soon.  The growth story is getting stretched into 2022 and this is very positive for risk appetite.  Energy traders are anticipating further price increases from Saudi Arabia and that might prove too aggressive given the short-term impact to demand over the Delta variant.  The oil market remains very tight but some vaccine requirements might disrupt the short-term demand story as still around one-third of the country seems unlikely to get vaccinated.  As more businesses start requiring masks again, that could lead to a slower demand recovery.

With the supply side somewhat under control across OPEC+ and non-OPEC producers, crude prices could still reach USD 80 over the next couple of months if the demand outlook doesn’t take any fresh hits.

Gold

Gold prices are surging after a wrath of US economic data painted a picture of a prolonged economic recovery that will likely be accompanied with a Fed that will not be abandoning its ultra-accommodative policies anytime soon. a downside surprise in both GDP and jobless claims justified the Fed’s dovish stance.  The softness in today’s GDP data was mainly attributed to the decrease with inventories.

The Fed won’t be changing its game plan anytime soon and that should provide a short-term bullish environment for bullion.  Gold will now be able to stomach progress on taper conditions and even a slowly steepening of the Treasury curve.  For the economy to reach the Fed’s goal of substantial progress in the labor market, the economy will need to have a couple of back-to-back million-plus jobs created nonfarm payroll reports.

If gold can clear the USD1850 resistance level, technical buying could support a strong rally back towards USD 1900.

By Ed Moya