Oil dips on weak demand, gold consolidates

Oil capitulates on Friday

The weight of stale long positioning in the speculative oil market finally took its toll on Friday, despite positive US employment data. With futures curves stubbornly in contango suggesting plentiful immediate supplies, the loss of upward price momentum saw both Brent crude and WTI break lower.

Brent crude fell by 3.80% to USD42.30 a barrel, and in Asia has continued to fall, edging 15 cents lower to USD42.15 a barrel. Brent has critical support at USD41.35 a barrel, a double bottom on the charts, and the two-month low. A daily close below that point implies a deeper correction can occur, targeting the 100-day moving average (DMA) at USD39.15 a barrel.

WTI fell by 4.50% to USD39.45 a barrel, easing by another 15 cents to USD49.30 a barrel during the Asia morning. Last Friday’s fall saw the support at USD41.10, the 200-DMA, fail, in a bearish technical development. WTI now targets its 100-DMA at USD36.10 a barrel.

Abundant supplies, fears of loosening OPEC+ compliance, the end of the US driving season and stale long positioning have all combined to erode confidence in oil. Although I do not expect massive falls, with signs of a global recovery continuing to increase, both contracts will now likely settle into new, lower, trading ranges. A structural rally in oil prices will only occur when the dynamics mentioned above, materially adjust.

Gold continues to consolidate

Gold had another sideways day on Friday, finishing the session just 0.15% higher at USD1934.00 an ounce. Most pleasingly for gold bulls, the yellow metal weathered the storm of a higher US dollar and higher US yields.

Gold has a clearly denoted support zone now between USD1900.00 and USD1920.00 an ounce. What is clear is that gold continues to find plenty of willing buyers on dips to the USD1930.00 region and that investors are content to wait for those price dips and not chase prices higher.

Having said that, a deeper correction in gold prices cannot be entirely ruled out, especially if the US dollar short squeeze on currency markets finds renewed momentum this week. A failure of USD1900.00 an ounce targets a retest of the August lows at USD1863.00 an ounce, followed by the 100-DMA at USD1815.00 an ounce. Daily resistance remains at USD2000.00 an ounce.

The fundamentals supporting a much higher gold price remain intact on the longer-term horizon. What is not yet clear, is if the short-term horizon is about to cause investors some mark-to-market pain.

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