Precious Metals

The wide WTI - Brent differentials at the front of these respective curves will continue to incentivize crude-oil exports from the U.S. to European refiners, who tend to favor the light-sweet crude coming out of LTO plays.

Gold and gold stocks have bounced nicely in recent weeks. But from a multiyear perspective, both remain extremely depressed (top panel). While gold has had several false starts in recent years, a number of factors suggest that the latest rally will have durability. Gold raises in stature as policymakers lose efficacy. That is certainly the case now, as incremental QE has done little to foster a return to above-trend growth and a growing number of countries have resorted to negative deposit rates to reinvigorate anemic economic activity. Real interest rates, the opportunity cost of holding gold, which is a zero-yielding asset, are low and falling around the world and may need to fall further to reverse the decline in economic confidence. Importantly, gold has begun to rise in a number of currencies, suggesting that it is no longer just a play on a lower U.S. dollar. From a tactical perspective, sentiment toward the yellow metal is still pessimistic, despite the jump in gold prices in recent weeks. That is a contrary positive. As a result, we recommend an overweight position in gold equities, both as portfolio protection and also as a long-term hedge on monetary policy exhaustion. While the S&P 1500 gold index has only two stocks, the Global Gold Miners ETF (GDX) provides a liquid and diversified proxy for gold equities, which we will use to track gold stock performance. Please see yesterday's Weekly Report for more details. bca.uses_in_2016_03_08_002_c1 bca.uses_in_2016_03_08_002_c1

As confidence in the sustainability of corporate sector profitability declines, the multiple accorded to equities should recede. Ten reasons to stay underweight the tech sector. Initiate an overweight position in gold shares.

The relief rally is not over, and could benefit from commodity and currency market movements. Oil prices likely are banging out a bottom. In general, however, a healthy dose of caution is warranted. Our bias is to sell into, rather than chase, rallies in risk assets.

A stunning 9.9 million-barrel build in U.S. oil inventories this week failed to arrest the upward climb in prices.

The remarkable admission by OPEC's secretary-general, Salem el-Badri, earlier this week that with "any increase in (oil's) price, shale will come immediately and cover any reduction" in output only hints at the larger impact of light-tight-oil (LTO) going forward.

Where is the most likely mispricing of interest rates today? Plus our latest thoughts on the U.K.'s June 23 referendum on EU membership, and its market implications.

While the oil market looked right through the Russian-Saudi production-freeze announcement earlier this week, we believe these states may be attempting to put lipstick on the proverbial pig, to provide a plausible narrative to explain the physical reality of lower oil production in a sub-$30/bbl world.

Somewhat like 1998, the dilemma for the Fed is that the labor market is approaching full employment and may justify eventual interest rate hikes.

Oil markets will continue to be buffeted by Russian overtures to OPEC suggesting a desire to orchestrate a production cut-back, while uncertainty over the Fed's next move keeps markets on edge.