Oil and Gold Markets Are Surprisingly Quiet.

Oil markets are surprisingly quiet.

Oil markets, by their standards, have been surprisingly quiet for the past few sessions, consolidating after hefty losses earlier in the week. At this stage, fears over China’s growth and overtightening by the Fed capping US growth seem to be balancing out concerns that Europe will soon widen sanctions on Russian energy imports.

Brent and WTI rose by around 1.40% overnight in directionless trading, but have given those gains back today in Asia, making for plenty of noise, but very little substance. Brent crude is 1.35% lower today at $107.25, and WTI is 1.20% lower at 102.75 a barrel. News that Japan will tender 4.5 million barrels out of its reserves in May seems to have been the excuse for Asia to push prices lower intraday. In the bigger picture, the amounts involved are immaterial.

I continue to expect that Brent will remain in a choppy $100.00 to $120.00 range, with WTI in a $95.00 to $115.00 range. Brent crude has further support at $96.00, and WTI at $93.00 a barrel. A potential European oil embargo on Russia next week after this weekend’s French elections, could see a move towards the top of the range.

What is gold telling markets?

Gold continues to confuse me. Overnight it retreated intraday to test support at $1940.00 an ounce, but as US yields and the US Dollar rallied, it also reclaimed its intraday losses, finishing just 0.30% lower at $1951.50 an ounce. It is unchanged in Asia. Either gold markets are walking into a huge bullish trap as the US Dollar and US yields continue to power higher, or gold markets are warning us that inflation is more entrenched than expected, or that the world is much more dangerous than markets are believing. Any of these scenarios could prove correct.

That said, from a technical perspective, gold still looks vulnerable to a failure of the $1940.00 support which could see more speculative long positions getting culled. Gold would potentially target $1915.00 an ounce and then critical support at $1880.00. Those nagging concerns I have expressed mean a decent washout in prices could be an opportunity to load up again at far better levels.

On the topside, gold has resistance at $1980.00 and $2000.00 an ounce. I believe option-related selling at $2000.00 will be a strong barrier. However, if $2000.00 fails, gold could quickly gap higher to $2020.00, and potentially, retest of $2080.00 an ounce.

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