Investing.com - Fueled by promises of free-flowing vaccines to stimulus, both oil and gold had a smashing week, joining record-high stocks on Wall Street on expectations that the coronavirus pandemic will end well for markets.
In a dichotomy to the daily highs in COVID-19 hospitalizations and the worst jobs recovery in the nine-month long pandemic, markets have been having a surreal celebration of risk. Investors are betting the house that the social-reordering the world has experienced since March will be reversed over the next few months as vaccines and therapeutics finally take charge.
For oil, the driver has been the surfeit of good news on the Pfizer (NYSE:PFE), Moderna (NASDAQ:MRNA) and AstraZeneca (NASDAQ:AZN) vaccine schedules. Despite some hiccoughs here and there - most notably Pfizer’s halving of the doses it could deliver by the year-end - the Dow, S&P 500 and Nasdaq all finished at all-time highs on Friday.
For crude itself, the bet is that a barrel will finish 2020 above $50 on the average - London’s Brent almost got there by Friday - and some believe it could go higher.
Even with snafus in vaccine news, the oil market seems to be taking heart from OPEC’s admirable discipline with production in times like this - agreeing to a half million barrel hike instead of a two-million jump initially feared.
Adding to the risk fervor, President-Elect Joe Biden said Friday that several - not one - stimulus of “hundreds of billions of dollars” will be needed to pull the U.S. economy through 2021. Senate Republicans, who did their best to stymie substantial Covid-19 related spending after the first $3 trillion approved under the Coronavirus Aid, Relief and Economic Security (CARES) Act in March, look cornered on agreeing to at least a $908 bipartisan deal coming down the pipe first.
Beyond what the Biden administration does, the Federal Reserve is also planning a deep-dive into bond-buying after seeing November’s unsettling non-farm payrolls that showed just 245,000 jobs being added versus expectations for a 470,000 gain.
“COVID lockdowns and restrictive measures are risking permanent scarring to the labor market and that will keep the Fed remaining ultra-accommodative,” Ed Moya, senior market strategist at OANDA in New York, said Friday.
Despite all this, some are expecting volatility in oil ahead.
“It would be naïve for traders, even the most technically-inclined, to ignore the ongoing tug-and-pull between the global economic recovery and the oil supply-demand deficit, which remains the prevailing overarching theme guiding energy markets,” Christopher Vecchio, senior strategist at Daily FX, said in a blog last week.
“We thus stick to our fundamental forecast of Q3’20 and Q4’20 as we near the end of 2020, which was calling for crude oil prices to stay elevated between $35 and $50 per barrel.”
As for gold, there are arguments on whether it has hit a wall between $1,835 and $1,850, after rallying hard from below $1,770.
The most optimistic case for the yellow metal now is a break to $1,880 and beyond. For this, much will depend on how the haven crowd buys the stimulus story from the Biden camp, and whether Republicans can resist the overtures of Democrats in Congress.
Also, two other things need to stay down for gold to go higher: the dollar - which is already at multi-year lows - and U.S. Treasury yields.
If an asset rotation suddenly happens, money could flee overbought stocks - including gold - to go into bonds instead.
“Gold's body language shows its willingness to cross into the right side of $1,900, but at the same time, technical factors call for caution,” said Sunil Kumar Dixit of Kolkata, India-based SK Dixit Charting.
“As expected, the precious metal is facing stiff resistance at $1,848 and Stochastic RSI (Relative Strength Indicator) negativity can cause some intraday correction to $1,830-$1,818. Buyers may come in at the test of $1,818-$1,820 areas and a consolidation may help gold to rally again, breaching $1,848 and reaching out to $1,866-$1,870.”
Energy Review
Crude prices hit nine-month highs and closed with a fifth straight week of gains as investors piled into oil after OPEC and its allies successfully stage-managed a production hike without rocking the market.
News that vaccine makers were working on supplying as many doses as possible before the end of December to curb the COVID-19 also boosted crude prices, amid efforts by U.S. lawmakers to pass a new coronavirus fiscal stimulus.
New York-traded West Texas Intermediate, the leading indicator for U.S. crude, last traded at $46.09 after officially settling Friday’s trade at $46.26, up 62 cents, or 1.4%. Earlier in the session, WTI hit $46.68, its highest level since March.
For the week, the U.S. crude benchmark rose 1.6%. That came after November’s whopping 27% gain, which was WTI’s best for a month since May.
London’s Brent, the global benchmark for crude, last traded at $49.05 after officially settling Friday at $48.71, up 46 cents, or 1.1%. Brent hit a session high of $49.86 earlier, its closest to the key $50 per barrel level it last traded at in February.
Brent’s weekly gain after its 28% rally in November, which was the global oil benchmark’s best for a month since May.
Oil prices have been on a tear over the past month on bets that people across the world might soon be able to travel freely as millions of doses of coronavirus vaccines were being prepared for delivery over the course of the next few weeks, after their approval by U.S. and U.K. health authorities.
“Vaccine optimism should keep the demand outlook healthy for 2021,” said Ed Moya, analyst at OANDA in New York, said in a note on oil.
Crude’s rally in the just-ended week was heightened by the ability of oil producers within the OPEC+ alliance to add just 500,000 barrels to daily production instead of an initially feared 2 million barrels.
Expectations that the U.S. Congress might agree soon to a Covid-19 fiscal stimulus also boosted the market. Stimulus plans such as these tend to weaken the dollar and boost commodities denominated in the currency, which include oil. The Dollar Index hit a six-year low of 90.47 on Friday.
Energy Calendar Ahead
Monday, Dec 7
Private Cushing stockpile estimates
Tuesday, Dec 8
American Petroleum Institute weekly report on oil stockpiles.
Wednesday, Dec 9
EIA weekly report on crude stockpiles
EIA weekly report on gasoline stockpiles
EIA weekly report on distillates inventories
Thursday, Dec 10
EIA weekly report on natural gas storage
Friday, Dec 11
Baker Hughes weekly survey on U.S. oil rigs
Precious Metals Review
Gold prices consolidated on Friday after a three-day run-up but still finished with their best week in four as investors hedging against the tumbling dollar steadfastly backed the yellow metal amid renewed emphasis for a US Covid-19 fiscal relief bill.
Gold for February delivery on New York’s Comex last traded at $1,842.10 an ounce, after officially settling at $1,840, down $1.10, or 0.1%.
For the week, though, the benchmark gold futures contract gained almost $50, or 3.3%. It was the yellow metal’s best week since the week ended Oct. 30 and erased a significant portion of last week’s near 5% loss, which was the biggest weekly plunge since July.
The spot price of gold, which reflects real-time trades in bullion, last traded at $1,837.32, down $3.65, or 0.2%. For the week, bullion rose 2.8%.
Gold is emerging from one of its most brutal sell-offs ever after dynamic breakthroughs in COVID-19 vaccines and their potential availability before Christmas caused a run on money in safe-havens.
The yellow metal lost about 6% of its value in November, its most for a month since 2016 and fell into $1,700 territory. Investors have in recent weeks directed money mostly into stock markets and other risk assets such as oil, as those witnessed an epic rally amid the notion that vaccines and therapeutics would soon bring an end to the spread of the coronavirus.
Despite the continued emphasis on risk, gold as a haven is rallying again on talk of a new U.S. Covid-19 stimulus effort, which triggered a plunge instead in the dollar, the alternative trade to the yellow metal. The Dollar Index was down more than 1% to a six-year low of 90.47.
The U.S. Congress originally passed in March the Coronavirus Aid, Relief and Economic Security (CARES) Act, dispensing roughly $3 trillion as paycheck protection for workers, loans and grants for businesses and other personal aid for qualifying citizens and residents.
In the past few months, however, Democrats in Congress have been locked in a bitter debate with Republicans in the Senate on a successive relief plan to the CARES Act. The dispute has basically been over the size of the next stimulus as thousands of Americans, particularly those in the airlines sector, risked losing their jobs without further aid.
The stalemate was finally broken last week after a bipartisan group of Democrats and Republicans proposed a $908 billion relief bill, which the two sides have been negotiating since.