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Stimulative policies to drive XAU/USD above $2,000 - TDS

FXStreet notes that after hitting a record $2,075.47/oz back in August, XAU/USD tumbled to just below $1,765/oz in late November and is now trading near $1,840/oz. TD Securities expects gold to perform well in the coming year as the yellow metal should do well once the economic growth path is established which will see lower volatility, higher inflation expectations and negative real rates. 

“With the Fed’s intentions to ease policy by increasing the average maturity weighting of its Treasury purchases following the December FOMC meeting, gold enthusiasts may not need to wait much longer for a convincing move higher. The combination of a commitment to the zero bound and a flat yield curve should be a bullish catalyst, as it caps short and long-term rates at the same time as fiscal stimulus and vaccines drive economic normalization. This suggests that the market should see a boost in inflationary expectations, leading to a renewed downtrend in real rates and a positive outlook for gold. Such an environment is also likely to drive the USD along a declining trajectory, which is also a mana for the yellow metal.”

“Based on the nomination of Janet Yellen for the Treasury Secretary of the United States role, it is likely that the Biden Administration policies should be quite tilted to robust fiscal stimulus. Various income and social support programs may also increase inflationary expectations, and with the Fed now comfortable allowing its policy rates to move above the stated two percent target, gold should benefit once economic normalization takes root. It is likely that investor demand should be firm, with fabrication demand also being helped by the normalization.”

“With mining supply only growing modestly relative to physical demand and money supply growth and the rate environment keeping gold inventories in vaults, the yellow metal is still expected to move toward $2,100/oz over the next twelve months or so. But as recent history suggests, it will be a very bumpy road.”

WTI: Market rebalancing key to see $50 in 2021 - TDS

FXStreet notes that energy markets are projected to post a respectable performance, but the strength of the increase is likely to be less than one would expect given the magnitude of the demand recovery in 2021. This is owing to OPEC+ large excess capacity, which will be released into the market to match the recovering demand, strategists at TD Securities apprise.

“On the demand front, the rollout of a COVID-19 vaccine in the early months of the year offers upside promise for both crude and product demand. But while the balance of risks still points in an upward direction, crude is not immune to potential hiccups, as COVID-19 lockdowns can remain a concern in the early months of the year, OPEC rifts emerge and Iran becomes a political talking point once again. All of this suggests that WTI crude could very well return to a 5-handle later in the year, with Brent marginally higher, but a significant move above this level is unlikely as prices are capped by COVID-related weakness in the early part of 2021 and by further increases in OPEC+ production as the rest of the year unfolds.”

“We continue to see firm support from the supply side into 2021, but the strength is certainly easing as uncertainties mount. As such, for crude markets to continue their strength through 2021, a passing of the baton from the supply side to the demand side needs to take place. OPEC+ and US shale declines carried a large portion of the initial recovery and should continue to help, but moving beyond COVID demand dynamics is the key to further upside.”

“As the economy continues to normalize amid a readily available vaccine, and the renewed stimulus impulse kicks off, the ‘Great Rebalancing’ should remain intact. Continued deficits and eroded inventory overhang should ultimately see crude prices return to the $50/bbl region in 2021.”