Asian oil demand is strong
Trump has indicated there may not be a favourable outcome
Oil prices are holding on to its gains as investors believe that the demand equation is sturdy and it would keep the price at its current levels. Asian oil demand is strong and as long as the demand is stronger than the supply, the basic law of economics would continue to support the price. Broadly speaking, the OPEC supply cut is the reason which reduced the supply glut. Having said this, we do believe the price has hit its ceiling for now, so expect consolidation or even a pull back to some extent is also on the table. The US shale producers remain the biggest threat to rattle the supply.
The precious metal has broken a key significant level of $1300, this effects the gold price. It has marked its lowest level for the year and the possibilities are we may stay below the $1300 for some time unless there is a major risk event. The strength of the dollar index and the subdued reaction to the geopolitical tensions by investors are the reasons behind the move. Failure of the US to reach any trade deal with China, as Trump has already indicated that there may not be a favourable outcome, could stimulate some demand for gold. Investors would seek safe haven due to a full blown trade war.
On the other hand, the Fed members are confident that the economy is fairly in a good shape and the US economy has reached the maximum threshold in terms of its full employment. This builds the strength for the Fed’s Hawkish stance towards their monetary policy.
