Oil prices ease, gold in choppy waters

Oil markets edge lower on profit-taking

Oil markets eased overnight as dollar strength spurred some profit-taking among speculative longs. Brent crude eased 0.65% to USD55.60 a barrel, and WTI fell by 0.85% to USD52.15 a barrel. In Asia, both contracts have added 20 cents a barrel in muted traded, with regional buyers still happy to buy any sort of dip.

Asia’s cold weather has pushed energy prices sharply higher, and this combined with a regional recovery, is likely to underpin physical demand on any sort of price dip. With that in mind, it is unlikely that a stronger US dollar will materially impact oil’s recent rally. It will likely take President Biden running into a stimulus brick wall for that to happen and is likely to be a story for the end of the month.

Brent crude has formed a double top at USD56.30 a barrel, and if USD53.50 a barrel fails, could extend losses back to the USD50.00 region. WTI has traced out a double top at USD52.70 a barrel, with a loss of USD50.00 a barrel potentially extending losses to USD46.00 a barrel.

Gold treads water near its lows

Gold probed through support at its 200-DMA at USD1837.00 an ounce overnight, trading as low as USD1817.00 an ounce intra-day, in what looked like further capitulation selling. But by the end of the day, it had recouped most of those losses, finishing just 0.30% lower at USD1843.00 in a volatile and illiquid session.

To the relief of long-suffering gold bulls like myself, gold appears to have picked up a risk-aversion tailwind in Asia, with regional buyers sending it 0.70% higher to USD1856.00 an ounce. That takes the immediate heat off gold but does not yet release it from the fire. Further US dollar strength and most significantly, rising US 10-year yields are likely to overwhelm any good work done by dip buyers overnight and today.

Gold is now flirting with its 200-DMA, today at USD1839.00 an ounce. Having avoided a daily close under that overnight, a daily close below would be a strong signal that the downward correction will continue. Gold’s resistance remains distant at its 100-DMA at USD1892.50 an ounce. Support is at USD1817.00 an ounce region with critical long-term support at USD1760.00 an ounce, its 61.8% Fibonacci, traced out in November.

I have highlighted USD1760.00 an ounce as a long-term structural low for gold prices previously. If USD1760.00 an ounce remains intact, gold remains itself in a longer-term uptrend. However, the reaction to the modest rise in US yields has surprised me. A failure of USD1760.00 an ounce would call for a reassessment and gold’s losses in that scenario could extend to USD1650.00 an ounce initially.

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