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Oil flips to contango, gold softens

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Oil prices retreat on oversupply concerns

Oil prices are declining as market structures flip to contango, the dollar resumes despite falling bond yields, and a dreary European short-term crude demand outlook.  Brent’s prompt spread is in contango as oversupply fears return due to lackluster demand.  The bumpy reopening process in Europe is raising concerns that they might not have a normal summer.  Lockdown extensions are crippling near-term demand forecasts and that could keep crude prices heavy a little while longer.

WTI crude weakness could target the mid-USD50s, but a sustained move below USD50 seems unlikely.  Europe should see lockdowns thwart the current COVID wave and vaccine rollouts will improve over the next couple of months.

Gold

Gold prices are modestly softer despite a much stronger dollar.  The global economic recovery is hitting a few big road bumps and that is driving some safe-haven flows into gold.  Gold had a limited reaction from Fed Chair Powell and Treasury Secretary Yellen’s joint testimony on Capitol Hill.  The dovish duo reaffirmed their assessment on the economy and the amount of support that is still required for the recovery. Their appearance was on the uneventful side. Powell reiterated his optimism that the USD1.9 trillion pandemic relief bill will not lead to an undesirable increase in inflation, adding that the Fed has tools to address any sustained pricing pressures.  Yellen reminded lawmakers that “very deep pockets of pain” are in the data.  She pledged that the government had the backs of small businesses, but did not give any details on the proposed sustainable infrastructure spending plan.

Gold is struggling for direction right now and a continued consolidation might be the trade for now.  Investors waiting for a make-or-break moment in the bond market might have to wait until Thursday’s seven-year notes auction.  Gold might be stuck between USD1700 and USD1750 until we get past that key auction.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies.

Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news.

Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal.

Ed holds a BA in Economics from Rutgers University.

Ed Moya
Ed Moya



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