Both WTI and Brent crude oil did not manage to close the gaps that were left open when the markets collapsed in early March after Saudi Arabia embarked on its short-lived price war. Instead, the market behavior following the agreement by OPEC+ members to extend the 9.7 million barrels/day production cut until end July, ended up signaling the beginning of an overdue correction/consolidation.
Hedge funds have been strong buyers of WTI crude since early March with the net-long reaching 380 million barrels in the week to June 2, the largest bullish bet on WTI crude oil since August 2018. While our longer-term bullish outlook hasn’t changed the next few months may look a bit more challenging with renewed Covid-19 outbreaks in the U.S. being the trigger that reduces the speculative position.
Precious metals: Gold’s inability, following the dovish FOMC meeting, to find a way through resistance above $1750/oz helped trigger some profit taking before renewed stock market and Covid-19 worries helped provide fresh support. While not offering any new initiatives, such as yield-curve control, the FOMC did provide a supportive outlook for gold. Official rates expected to be kept at zero through 2022 while robust monetary support will be provided through the continued buying of bonds.
We maintain our bullish outlook for silver and not least gold now that its premium to silver has narrowed. The main reasons why we expect to see a minimum move to $1800/oz in 2020 and a fresh record high over the coming years are:
- Gold acts as a hedge against Central Bank monetization of the financial markets
- Unprecedented government stimulus and political need for higher inflation to support debt levels
- The inevitable introduction of yield controls in the US forcing real yields lower
- A rising global savings glut at a time of negative real interest rates and unsustainably high stock market valuation
- Raised geo-political tensions on Covid-19 blame game ahead of U.S. November elections
- A weaker U.S. dollar