Crude oil steady while gold rallies

Oil markets balanced between opposing forces

Oil markets finished almost unchanged overnight, Brent crude ending 0.25% lower at USD55.70 a barrel, and WTI 0.10% lower at USD52.95 a barrel. In Asian trading, markets are equally muted, content to reverse those modest falls overnight, leaving Brent at USD55.90 a barrel, and WTI at USD53.10 a barrel.

Oil prices appear to be caught between opposing forces on the near term, which cancel each other out. President Biden quickly moved to quash the XL oil pipeline yesterday, signalling more restrictions on the oil industry, emphasising renewables. He also announced the intention to rejoin the Paris Climate Accords. Conversely, oil prices remain supported by the fiscal stimulus trade, with the US intention to reengage with the WTO also perceived as positive for growth and thereby oil consumption. That is somewhat balanced out by Chinese tariffs remaining completely intact for now.

Despite the neutral session for oil, both contracts remain comfortably ensconced near the top of their recent ranges. The weight of speculative long positioning may be muting rallies for now. Still, the technical picture suggests a test of resistance is imminent, especially if the US dollar has entered a weakening path in the shorter term.

Brent crude’s immediate resistance is at USD57.40 a barrel, with losses likely to be limited to USD54.50 a barrel. WTI has substantial resistance ahead of USD54.00 a barrel with support between USD51.80 and USD52.00 a barrel likely to restrict any pullbacks.

Gold bugs buy into Biden

The Biden inauguration led to an impressive 1.70% rally by gold overnight, closing nearly USD32.00 an ounce higher in New York at USD1871.50 an ounce. Precious metals markets were tunnel focused on the potential USD1.9 trillion stimulus trade, to the exclusion of any associated risks, with dollar debasement theory back in vogue. Notably, US yields were unchanged and as the US dollar retreated, this gave bullish gold investors to pile into new longs, with intra-day momentum becoming a self-fulfilling prophecy.

Gold prices will be acutely vulnerable now to an aggressive pullback if Senate Republicans signal that they are not sold on the Biden stimulus proposal. Asian investors certainly seem to be considering this after such a large move overnight, gold being unchanged in Asia this morning.

Gold faces resistance nearby at its 100-day moving average (DMA) at USD1884.60 an ounce, followed by the USD1900.00 and USD1920.00 an ounce. The nearest support intraday is ominously distant around USD1833.00 an ounce, followed by USD1800.00 an ounce.

Having been viciously whipsawed this month already, bullish gold investors should treat the overnight rally with caution and resist chasing the market at these levels.

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