Oil retreats, while gold soars

Oil retreats on OPEC+ opaqueness

Oil markets retreated overnight after OPEC+ could not decide at its monthly meeting on new production targets. Broadly speaking, it appears that Russia wishes to increase production, while other members, led by Saudi Arabia, remain more cautious about adding supply. Discussions will now drag on into today, which isn’t a huge surprise but was enough to topple oil markets of recent highs overnight.

Brent crude fell by 1.40% to USD50.75 a barrel, and WTI fell by 1.75% to USD47.35 a barrel. In Asia today, dip buying has been notable, with both contracts climbing by 0.40% to USD51.00 and USD47.60 a barrel respectively. The rally though looks corrective and driven by physical buyers in a thin market liquidity wise.

Both Brent crude and WTI made new highs overnight, before falling to close under Friday’s lows, tracing out bearish outside reversal day technical patterns. With oil prices having rallied around 30% in two months, it is clear that oil speculators are heavily long. Uncertainty around the Georgia Senate elections or further disagreements amongst OPEC+, dragging out discussions into Wednesday, could be the spark for a long-overdue correction lower.

The outside reversal patterns are a warning that the downside is vulnerable, although I note, neither contract is overbought on its relative strength index (RSI). For Brent crude, the overnight high at USD53.50 a barrel is resistance. Support is nearby at USD50.50 a barrel followed by USD49.00 a barrel. A failure of USD49.00 a barrel opens up a much deeper potential correction to USD47.00 a barrel initially.

WTI has resistance at USD50.00 a barrel and initial support nearby at USD47.00 a barrel. Failure opens up more profound losses that could extend as far as USD44.00 a barrel.

Gold soars overnight

Gold exploded higher overnight, with bitcoin’s holiday rally appearing to be the spark that lit the fire. Gold finished the session 2.35% higher at USD1943.00 an ounce, a USD45 an ounce gain for the session. The rally through USD1900.00 an ounce appears to have triggered stop-losses and dragged model buyers into the market, propelling both it and silver much higher. The uncertainty surrounding the Georgia election saw risk-hedging buyers emerge and gave more momentum to the rally. It notably ignored bitcoin’s near 20% intraday pullback, suggesting that the flows were not only speculative in gold.

Gold has been much quieter in Asia, with some profit-taking emerging to push it slightly lower to USD1938.00 an ounce. The fate of the gold rally in the short-term now rests entirely on the Georgia Senate election outcome. A Republican gain of just one seat will likely be regarded as a market positive and should see some of the risk-hedging based gold buying unwound. Conversely, a resounding double win by the Democrats will probably see gold rally towards USD2000.00 an ounce.

Gold has clear technical support at USD1900.00 an ounce and USD1895.00 an ounce, the 100-day moving average. Unfortunately, given the rally yesterday’s pace, there is nothing but clear air between USD1900.00 and its current level. A series of highs between USD1965.00 and USD1975.00 an ounce denotes initial resistance, followed by USD2000.00 an ounce, where I expect heavy option-related selling to cap gains initially.

I expect gold to trade in a noisy USD1910.00 to USD1960.00 an ounce range over the next 24 hours as we await the Georgia Senate runoff outcome.

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