Oil bulls pause for breath

After booking 2% gains in the previous session and reaching fresh multi-year highs, oil bulls are pausing for breath. The black gold has been tearing higher across the past five weeks, up just shy of 14% since mid-May.

Oil is being boosted by rising demand expectations as economies re-open. Fuel demand is increasing as traffic levels increase and international travel ramps up. Traffic levels in Europe and US cities are returning to pre-pandemic levels. Meanwhile, 2.1 million Americans took to the skies, the highest number of people to fly since the start of the pandemic.

As far as headwinds are concerned, the possibility of Iranian oil flooding back into the markets has eased following the election of Ebrahim Raisi, a hardline judge who was already under US sanction before taking office.

Fundamentals remain supportive of further gains. US dollar movements will be key to watch near term. As the US dollar ticks higher, oil becomes more expensive for buyers of foreign currencies, which can drag on demand. More hawkish calls from the Fed could see oil ease back further from recent highs.

Gold moves lower ahead of Powell

Gold is edging lower after solid gains in the previous session as choppy trade continues. Last week the yellow metal saw its biggest weekly decline in 15 months after the surprise hawkish shift from the Fed. However, yesterday’s reassurance by Federal Reserve Chair Jerome Powell that inflation will likely be transitory helped gold rebound on Monday. However, the precious metal has been unable to maintain those gains, falling back below USD1780 on the back of rising US treasury yields and a stronger dollar.

The direction of monetary policy is at a transitional point, making investors wary. This is being reflected in the gold market, which is particularly volatile as it hangs on the Fed’s every word. All eyes are now on Powell as he takes the hot seat later today before Congress. Any signs of moderating last week’s hawkish shift could see gold retake USD1800. Meanwhile, more hawkish commentary could keep the precious metal under pressure.

For a look at all of today’s economic events, please check out our economic calendar at www.marketpulse.com/economic-events/