How do commodities react to the vaccine news?

The initial reaction to the news about the vaccine in the commodity market is obvious - oil clearly up and gold clearly down. This is the effect of the likely reduction in risk in the near future. However, it is worth remembering that the vaccine shows positive results in the third phase of tests, but this does not mean that the vaccine will enter the market quickly. It is worth remembering that it takes years for a vaccine to be approved, and COVID19 is not an ordinary flu, for which it is very easy to modify the vaccine each year.

Even Biden said recently that the potential vaccine will not lift the obligation to wear face masks, and will not immediately lift other restrictions. These will continue to apply in the coming months.

 

Oil
During today's session Brent recorded the biggest daily increase since June. This is due to the fact that the vaccine can stimulate many sectors of the economy, including primarily land and air transport. Brent oil is gaining 8.5%, while WTI oil jumped 10%. However, it is worth remembering that the vaccine will not cause all planes to take off in a week. In reality, we will still be dealing with limping demand.

Oil is the most responsive because the vaccine is a long-term solution to the weakness of demand. The earlier rises in oil prices were of course related to supply constraints and a slow recovery in demand, which theoretically will not return to pre-pandemic levels for many more months. Another strong resistance is located near the $44 per barrel level. Source: xStation5

 

Gold
The appetite for risk means lower demand for safe haven assets. Not only gold is trading lower, but we also saw increases in the USDJPY pair, although it is also an effect of Biden being elected president. In this respect, however, it is worth remembering that gold was also gaining before the pandemic, and will also react to the behavior of the US dollar. In view of the new government in the US and further actions from the central banks, we can expect a weaker dollar. Therefore, we anticipate that the recent declines will be short-lived.

Risk on sentiment and a strong increase in bond yields make investors move away from gold. Nevertheless, it is worth noting that the dollar remains firm. Moreover, US currency should rather fell after publication of the vaccine information, which creates a huge divergence between EURUSD and gold. Source: xStation5

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