Oil suffers a pipeline burst, gold slips

Oil falls sharply as US dollar recovers

Oil markets endured their most torrid day in weeks as a rotation out of risk positioning, and a stronger US dollar weighed heavily on energy markets. Again, the price action overnight looks to have highlighted the fast-money nature of oil’s recent gains, as a massive drawdown overnight in US Crude Inventories was ignored entirely by markets.

Brent crude fell by 3.0% to USD44.30, surrendering its 200-day moving average (DMA) at USD45.60 a barrel. The August 21st low at USD43.60 a barrel looms as must hold support for Brent crude. Failure opens up a deeper correction to USD42.00 a barrel.

WTI fell 3.35% to USD41.44 a barrel, just above its 200-DMA at USD41.25 today. Looking for any excuse to lighten positioning overnight, traders noted a rise in gasoline inventories. Still, the real story is a fast-money rotation out of long positioning established at the top of the recent ranges. A daily close below USD41.25 implies further losses to the USD40.00 a barrel area, and possibly as low as USD39.00 a barrel.

Both Brent and WTI are unchanged in moribund Asian trading, as the region’s participants adopt a wait and see approach ahead of US data this evening and tomorrow. Physical buyers, having looked at the overnight price action, appear to be taking the view that they will find better entry levels into the end of the week.

Goldfinger’s get caught in the exit door

With price gains having stalled over the past few days, the US dollar rally and haven flows into US bonds, was all the signal fast-money longs needed to rush for the door. As ever, the exit door was smaller than the number of traders attempting to exit, and gold suffered a 1.40% decline to USD1943.00 an ounce.

Gold has quite strong support in the USD1905.00 to USD1920.00 an ounce zone, which has limited all selloffs of the past three weeks. With gold’s bullish fundamentals unchanged, we will likely see that same interest to buy dips appearing again should gold move lower from present levels. That said, a failure of USD1900.00 an ounce likely signals a deeper correction to the 12th August lows around USD1863.00 an ounce. Longer-term players need a strong constitution, patience and an appetite for volatility in today’s markets.

Gold has tried to move higher in Asia, but the rally has been quickly rebuffed, leaving the yellow metal almost unchanged at USD1943.50 an ounce. Asia will likely retreat to the side-lines now, and allow gold’s next direction to be set by the New York time zone.

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