Oil steady, gold holding at USD 1900

Oil Markets Remain Firm

Oil prices edged higher again overnight as the unilateral production cuts by Saudi Arabia continue to underpin markets. The stimulus exuberance seen in US equity markets did not entirely translate to the energy sector, but both Brent and WTI still managed to creep higher. Brent crude 0.50% to USD54.45 a barrel and WTI rose 0.80% to USD50.80 a barrel. Asian trading has been quiet, but both contracts have added another 10 cents a barrel this morning.

With supplies now being squeezed, both contracts have every chance of maintaining their impressive two-month price gains, as the world recovery continues to accelerate. Brent crude’s next target is USD60.00 a barrel, with only a retreat through USD50.50 a barrel calling the rally into question. WTI, having broken through the USD50.00 a barrel barrier, should now target USD55.00 in the weeks ahead. Critical support is distant at USD47.00 a barrel. Saudi Arabia appears to be aiming for a USD55.00 to USD60.00 a barrel range for Brent crude. Enough to fill the depleted coffers of OPEC+, but not enough to have the barbarians of US shale storm the gates.

Gold holds nervously above USD1900.00

US yields continued to grind higher overnight, lifting the US dollar and forcing gold into a modest retreat. Gold fell 0.30% to USD1913.50 an ounce overnight, edging lower to USD1909.00 an ounce in Asian trading.

Gold has now fully unwound its rally from Monday and now sits just above some critical support levels. Initial support is at USD1900.00 an ounce, just ahead of its 100-day moving average (DMA), at USd1894.00 an ounce. Gold has consolidated around these levels over the past few days, suggesting that there are plenty of buyers around just ahead of USD1900.00 an ounce, even if it lacks upward momentum.

Gold is very sensitive to the US 10-year yield. If the 10-year yield keeps rising, gold could seriously threaten support. That could lead to a much deeper capitulation correction. Failure of the 100-DMA implies a deeper sell-off targeting the USD1850.00 region. Resistance remains around the USD1960.00 level, and I expect gold to range between USD1900.00 to USD1930.00 an ounce until the Non-Farm Payrolls this evening.

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