Oil ($63) and Gold ($1,780) in Consolidation Mode

Oil set for over 6% gains this week

Oil prices are consolidating around monthly highs and are on track to gain over 6% across the week. An improved oil demand outlook combined with growing optimism surrounding strong economic recoveries in the world’s two largest economies has lifted oil prices across the week.

Blowout macro data from the US, signs of more cars on the road, plus record quarterly GDP growth in China support the higher oil demand outlook touted by the EIA and OPEC earlier in the week.

The reopening of the US economy has resulted in traffic levels rising in various states and this is before the US driving season even gets underway. In the latest sign of the gasoline comeback, miles driven on US highways are higher than at the same time in 2019, boding well for a robust petrol demand in the key June – August period.

Optimism surrounding the economic recovery is overshadowing the worsening Covid picture in the likes of India and Europe.

Gold looks ripe for further gains

Gold surged high in the previous session and is consolidating those gains today as geopolitics return to the spotlight. Geopolitics are back with a bang after the US imposed sweeping sanctions on Russia, a move which drove investors in search of the precious metal for its safe haven properties.

Falling bond yields across the week have also underpinned gold, which is on track to book over 1% gains across the week. Whilst treasury yields are slightly higher today, capping gains in gold, they remain below 1.60% and at levels last seen in early March, before the run higher. It would appear that the bond market is finally buying into the Fed’s low for longer verse which would be supportive of non-yielding gold.

Gold is currently testing strong resistance at USD1760, supporting the formation of a double bottom reversal pattern from the USD1677 low. The setup points to further gain near term and any move lower could be considered a buying opportunity.

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