Oil rises on Yellen, gold steady

Oil rises on Yellen testimony

A downgrade of the global oil consumption outlook by the IEA overnight was not enough to dampen spirits in oil markets, who remain target-fixated on the proposed US fiscal stimulus package to the exclusion of all else. A fall in the US dollar overnight for the same reasons also helped oil to rally. Brent crude rose 2.05% to USD55.85 a barrel, and WTI jumped 1.80% to USD53.00 a barrel.

With cold weather in North Asia and Europe squeezing gas prices higher, oil is likely to remain bid on dips by correlation. In general, oil should retain a positive outlook until such a time as US Senate Republicans signal how supportive or not they will be of the proposed Biden stimulus initiatives. Belligerence on their part could be the signal for a short-term correction lower.

Oil has continued moving higher in Asia as the risk environment continues to ride the stimulus sentiment wave. Brent crude and WTI adding 40 cents each to USD56.25 and USD53.40 a barrel respectively. Critical resistance for Brent crude remains last week’s high at USD57.40 a barrel which opens the door for further gains to USD60.00 a barrel. WTI must overcome resistance at USD54.00 and USD54.50 a barrel, but a daily close above the latter leaves the charts clear until the USD60.00 a barrel zone as well.

Gold gets a modest Yellen boost

The effervescence seen in other markets after the Yellen testimony was not as bubbly in gold markets overnight. Nevertheless, gold still managed to eke out a modest 0.12% gain on a tranquil day, to close at USD1840.00 an ounce. Momentum has picked up in Asia with gold climbing 0.55% to USD1850.00 an ounce.

The rally leaves gold still locked in a broader USD1800.00 to USD1865.00 an ounce range, albeit nearer the topside. The 200-day moving average (DMA) at USD1844.00 an ounce will continue to act as an intraday pivot point. The 50-DMA at USD1859.00, and then the USD1865.00 an ounce area continuing to act as a barrier to further gains. The overnight low at USD1834.00 an ounce, followed by Tuesday’s downside spike to USD1803.00 an ounce, form interim support levels.

Overall, gold lacks the momentum to stage a meaningful rally, with investors still nursing their wounds from the new year collapse. The US dollar would have to retreat meaningfully, and US yields continue to fall to energise the bull market. Although it is clear that plenty of buyers were out in force on the drop to the USD1800.00 an ounce regions, the risks remain weighted to the downside for gold. In all likelihood, gold will trade in a choppy USD1820.00 to USD1870.00 an ounce range for the rest of the week.

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