Oil steady, gold rises on US dollar woes

Oil steady in Asia

The oil sell-off that continued in Asia yesterday hit a brick wall and abruptly reversed as soon as Europe walked into the office. Although I expected a rapid recovery, the pace caught me by surprise and really speaks volumes about the pent-up demand lying in wait in the physical oil market now. A lower US dollar in the New York session gave oil a gentle nudge and both Brent crude and WTI recorded small gains for the day. Brent crude finishing 0.40% higher at USD 84.50, and WTI climbing an impressive 1.10% to USD 83.05 a barrel. Asia has decided to sit on its hands today after getting it so wrong yesterday, with both contracts steady near their New York close.

The potential restart of nuclear talks with Iran, and the potential return of Iranian crude to markets legally, seem to have run their course with US traders more concerned about the large rundown in available stocks at the Cushing distribution hub. Nevertheless, oil still faces some downside risk over the weekend and into next week’s OPEC+ meeting on 4 November. Energy Intelligence is running a story suggesting that OPEC+ may be comfortable raising production by more than its present targets. With compliance at 115%, I am not sure how that would happen, but if OPEC+ does spring a surprise, oil could once again see an abrupt correction lower. And this time, it may linger for longer.

Brent crude has regained the trendline support at, today at USD 84.40 a barrel, although it has not managed to move clear of it. It has traced out at double bottom after yesterday’s sell-off at USD 82.25 a barrel and price action remain constructive unless this is broken on a closing basis. Resistance is distant at USD 86.00 a barrel. WTI held its trendline support at USD 80.75 a barrel and has traced out a triple bottom at that level. Only failure signals deeper losses now. A rise above USD 83.20 a barrel signals a retest of USD 84.00 a barrel. Notably, the relative strength indexes (RSIs) on both contracts have fallen into neutral territory, removing another technical signal that would limit gains.

Lower dollar boosts gold

Gold prices rose again overnight despite US 10-year yields rising across the US yield curve. Gold has a general sell-off of the US dollar to thank and that lifted it to a 0.10% gain to USD 1799.00 an ounce overnight. In Asia, a rising US dollar has seen gold retrace slightly, falling by 0.25% to USD 1794.00 an ounce. Ominously, gold’s rally extended to USD 1810.50 intra-day overnight, but for the fourth time in one week, it failed in that area and gave back most of its gains. That is in keeping with my predicted USD 1780.00 to USD 1820.00 pre-FOMC range next week.

In the near-term, if the trendline support, today at USD 1790.00, as well as USD 1780.00 an ounce hold, gold’s price action remains constructive. Gold has a well-defined resistance area in the USD 1810.00 region, followed by the formidable resistance zone between USD 1832.00 and USD 1835.00 an ounce.

A move above USD 1835.00 would be a powerful bullish technical signal though, but my base case is that gold’s retreat resumes into next week after the FOMC. Failure of USD 1780.00 therefore, likely signals deeper losses targeting USD 1750.00 in the first instance. Conversely, if gold overcomes formidable resistance into USD 1835.00, it will signal further gains to USD 1900.00 and possibly USD 2000.00 in the coming weeks, as the break would trigger an inverse head-and-shoulders formation.

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