Oil rallies, gold slips as dollar rises

Oil rallies on China imports

Oil surprised the author overnight, with both Brent crude and WTI firming in what appears to be a delayed reaction to China’s massive increase in imports yesterday. Amongst the components, oil imports did indeed increase substantially, along with base metals ores. The leaders of both Saudi Arabia and Russia reiterated their commitment to keeping oil prices firm, which offset the UAE announcing that further easing of OPEC+ production cuts would go ahead as scheduled in January.

Brent crude rose 1.65% to USD42.45 a barrel, climbing back up through its 100 and 200-DMA’s which seem to be serving as intra-day pivots at the moment. Brent crude now has resistance at USD42.70 and USD43.50 a barrel, with support at a double bottom at USD41.40 a barrel. WTI rose 1.75% to USD40.15 a barrel, rising through its 100-DMA at USD40.00 a barrel. That will form initial support, followed by the week’s low at USD39.05 a barrel. Resistance appears at USD40.60, followed by a formidable triple top at USD41.50 a barrel.

This morning in Asia, oil prices have eased after OPEC again downgraded its consumption forecasts for 2021. Both contracts are slightly lower by 0.20%, but by and large, they have weathered this negative headline very well. That implies that oil prices seem to have found a temporary equilibrium around these levels. Both contracts are loitering near the higher end of their one-month ranges but appear to lack the momentum to challenge those highs seriously. That is likely due to the reality of the global supply/demand outlook. That means that oil looks set to continue to trade noisily within the boundaries of its one-month ranges for the time being.

Gold torpedoed by US dollar rebound

My leading reverse indicator curse struck again overnight. Having predicted that gold would continue to grind higher, a sharply higher US dollar sent gold sharply lower. Gold failed at its USD1930.00 an ounce trendline resistance and fell by 1.65% to USD1891.00 an ounce. A slightly lower US dollar in Asia has seen gold creep higher to USD1897.00 an ounce in subdued trading.

The main lesson that I have taken from the overnight fall, is that the US dollar is driving gold prices and gold’s rally was not a gold story in itself. It also highlights that fast money flows, and not longer-term ones, are driving intra-day prices for now. The propensity for gold longs to wear any downside pain was evident overnight, as they rushed for the exit door at the first hint of trouble.

With gold prices driven by price movements elsewhere, the market looks set to trade noisily over the coming week, albeit in a relatively wide range. With several USD40 an ounce ranges in recent trading sessions, that trading range is now potentially quite wide. I expect gold, therefore, to bounce around between USD1850.00 and USD1950.00 an ounce in the coming week. Longer-term bulls can probably afford to bide their time and wait for dips to buy.

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