China weighs on oil, gold edges up

China growth fears continue to weigh on oil

Oil prices finished sharply lower overnight, despite OPEC telling Europe they wouldn’t be pumping any more oil. Recession fears around US monetary policy and mostly, fears surrounding China’s growth outlook and its Covid zero policy, pushed oil prices down in overnight trading.

Brent crude fell 2.90% to USD 99.25 overnight, while WTI fell 2.65% to USD 95.20 a barrel. The easing of Shanghai lockdowns today has prompted dip-buying by Asian buyers, hopeful the worst is past now for China. Brent crude has risen by 0.75% to USD 100.10, and WTI has risen 0.90% to USD 96.05 a barrel. China headlines are clearly having a greater impact than Eastern Europe on short-term movements for now.

With the latest scheduled OPEC+ increase, and US and IEA SPR releases out there and priced in, it seems that China continues to drive the bearish price action. Brent and WTI have fallen to the bottom of my ranges, but I expect Brent to remain in a choppy USD 100.00 to USD 120.00 range, with WTI in a USD 95.00 to USD 115.00 range. Brent crude has further support at USD 96.00, and WTI at USD 93.00 a barrel.

Gold’s inflation hedging bid continues

With US yields charging higher, and the US dollar remaining flat, gold had room to state its inflation hedging credentials overnight. Gold staged a sharp rally intra-day, rising USD 22 at one stage to USD 1970.00 an ounce, before easing to finish 0.34% higher at USD 1954.25 an ounce.

In Asia, gold has added another 0.25% to USD 1958 an ounce and if the greenback continues to trade sideways, potentially has room to extend gains. Once the US dollar rally resumes though, gold’s recent gains may be tested. Therein lies gold’s biggest challenge, with a habit of retreating as fast as it gains at the first sign of trouble.

Gold was capped at my second resistance level at USD 1970.00 an ounce overnight and needs to close above there on a daily basis to challenge USD 2000.00 an ounce.  A fall back through USD 1940.00 likely sets off another whipsaw move lower, chopping out the short-term money. Failure of USD 1915.00 will signal a retest of important support at USD 1880.00 and possibly USD 1800.00 an ounce.

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