Gold and oil fall on Wall Street sell-off

Oil’s orderly retreat continues

Oil prices fell overnight, with much of the blame being apportioned to the Wall Street stock sell-off. That oversimplifies the case though, with a widening contango on the Brent futures curve and stale long positioning more likely to be the real culprits. The stubborn contango is suggesting that immediate supplies of oil remain plentiful.

Brent crude fell 0.90% overnight and has drifted another 0.95% lower to USD43.55 a barrel in Asia. Its 200-day moving average (DMA) at USD45.50 a barrel remains a formidable obstacle to future gains now, having capped rallies over the past week. The overnight low at USD43.20 a barrel is initial support, with a loss of that level opening a deeper correction to double bottom support at USD41.40 a barrel.

WTI endured a volatile session overnight before ending the day 0.75% lower at USD41.25 a barrel, also its 200-DMA and a critical support zone. Today in Asia, WTI has maintained its adverse price action, falling 0.95% to USD40.80 a barrel. A weekly close below its 200-DMA would be a strong bearish signal that more losses are to come. Initial support lies at USD40.25 a barrel, WTI’s overnight low. Failure there risks further losses to USD38.50 a barrel in the days ahead.

Asian physical buyers are absent this morning and looking at the price action over the past 24 hours, rightly so. Both contracts look precarious now and will be relying on robust Non-Farm Payroll data this evening to salvage them. Abundant spot supplies and a nervous equity market will continue to erode confidence.

Gold’s overnight fall is good news for bullish traders

Gold prices eased overnight but compared to the carnage seen in previous equity markets sell-offs, the falls were modest. The resilience shown by gold overnight, signals its bullish longer-term fundamentals remain well and truly intact.

Gold fell only 0.65% to USD1931.00 an ounce overnight, with Asia reclaiming most of those losses this morning, gold rising back to USD1937.00 an ounce. Notably, gold’s critical resistance zone between USD1900.00 and USD1920.00 an ounce remained untested. That support region will prove a tough nut to crack. Today’s price action is suggesting that investors are more than happy to pick up gold on dips, even if they are not inclined to chase prices higher.

While waiting to see how the correction in US stock markets plays out, gold looks destined to range trade for some days yet between USD1900.00 and USD2000.00 an ounce. Only a loss of USD1860.00 an ounce will call into doubt the medium-term rally.

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