We remain optimistic about the prospects of these two metals, especially gold, because its premium to silver has narrowed. We cannot rule out that the main reasons for reaching a new high in the next few years are:
Gold as a hedge against central bank financial market monetization
Unprecedented government stimulus measures and political demand to increase inflation to support debt levels.
The United States inevitably introduces yield control, forcing real yields to fall
At a time of negative real interest rates and unsustainable high stock market valuations, the global savings glut is increasing. Covid-19 accused the geopolitical tensions of intensifying when the game began to inflate inflation and the dollar weakened.
The crude oil rally that occurred after the collapse below zero on April 20 showed the first signs of a pause. After the WTI futures contract hit the $ 35 resistance and Brent failed to challenge the $ 37.2 / barrel, these two levels were the 38.2% retracement of the sell-off from January to April. The WTI contract that expired in May last month briefly fell to a negative value, and may be the biggest contributor to the subsequent strong rebound.
The incident on April 20 caused shock in the global oil market, and producers realized that some dramatic measures must be taken to free the market from greater pain. This may lead to major manufacturers showing very strong and rapid compliance during May.
The International Energy Agency saw in its latest monthly oil market report that global supply fell by 12 million barrels / day in May, falling to a 9-year low of 88 million barrels. At the same time, demand is expected to fall from 22 million barrels per day in May to 13 million barrels per day in June.
Supporting this process is the rapid decline in shale oil production in the United States, and in most cases involuntary decline, the IEA now estimates that this level will reach 2.8 million barrels per day by 2020. OPEC + ‘s previous production cuts always caused some hesitation because members of the group risked bringing more market share to North American producers. As WTI plunged, this risk disappeared because WTI left many producers without money, forcing them to stop production.
After entering the integration stage, it is worth considering which factors may trigger new weakness. There are several most relevant risks:
The easy lock triggered the resurgence of Covid-19. Whether OPEC + can maintain the current high level of compliance. US producers with cash shortages are eager to increase production, and WTI returns to more than $ 30 per barrel.
Changes in global consumer habits after a pandemic (reduced flights, more work at home). The July WTI futures contract broke through $ 35 / barrel, which may imply that it might expand to $ 40 / barrel, while the support level should be at $ 30 / barrel. Only a fall below $ 28 / b will trigger concerns about further corrections.
In addition to the risk of a new trade war between China and the United States and a weaker-than-expected recovery in demand, the focus of the oil market in early June will again turn to Vienna, and the OPEC and OPEC + groups convene to discuss the way forward. Some concerns that Russia may have difficulty committing to the current cuts after July may cause some tension before the June 8-10 meeting. The reason for this is that so far, the rebound in crude oil prices has been mainly driven by production cuts, which are easily reversed, and demand has not yet rebounded strongly.