Oil prices slide, gold range trades

Oil prices correct lower

Oil prices suffered a sharp fall on Friday, with a rising US dollar enough to see extended speculative longs heading for the exit door. Brent crude fell by 2.90% to USD54.80 a barrel, and WTI fell by 2.95% to USD52.10. In Asia, both contracts have eased modestly again to USD54.60 and USD52.00 respectively. As I noted last week, the Relative Strength Indexes (RSIs) on both contracts were in overbought territory, indicating a correction was on its way. The sideways trading of the second half of the week, and the upcoming weekend and US holiday appear to have been the downward catalyst.

Both RSIs have now moved back into neutral territory, but oil will probably be buffeted between opposing forces this week. On the one hand, Reuters reports that US shale producers are back in force, selling rallies in the futures to hedge future production. The price action on Brent and WTI in the second half of last week seems to bear that out. Fears will increase that a President Biden may also ease restrictions on Iran. However, the massive squeeze in gas and coal prices in Asia, as inclement weather and power shortages increase demand, will have a spillover effect on oil prices. Asian buyers should be active on any material dips.

Oil’s correction does have the potential to extend lower with the USD53.00 leaving being a critical pivot level for Brent crude. WTI’s support is nearer, at USD51.50 a barrel, although only a loss of USD49.30 calls the overall rally into concern.

From a supply/demand perspective, a President Biden’s re-engagement with Iran remains the most considerable danger to oil’s recent rally. Hopefully, markets will have more visibility on this by the end of the week.

Gold’s choppy range-trading continues

Gold’s choppy range-trading between USD1817.00 and USD1864.00 an ounce continued on Friday, with a stronger US dollar sending gold lower by nearly 1.0% to USD1829.00 an ounce. With a US holiday, trading has been muted in Asia. Gold has edged lower to USD1828.50 an ounce.

Gold has been capped above USD1860.00 an ounce all of last week, while conversely, finding good support on each dip to the USD1820.00 an ounce region. Gold will need a daily close above or below those regions to set its next direction; otherwise, the noisy range trading is set to continue, with the market tying itself in knots to fit news flow to the price moves.

With the US dollar expected to remain firm, the weight of probability errs towards the downside. Beyond USD1817.00 and USD1800.00 an ounce, the 61.80% Fibonacci remains gold’s critical support level. A daily close below USD1760.00 an ounce signals deeper losses to the mid-1600s.

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