Oil jumps, gold showing swings

Oil prices explode higher as US production falls

Data released by the US EIA overnight said that US oil production had suffered a 10% (1 million bpd) fall due to the Texas power cuts. Combined with a dovish Jerome Powell and an already tight physical market, oil prices exploded higher. Brent crude rose 3.40% to USD67.25 a barrel. WTI, meanwhile, leapt 3.70% higher to USD63.45 a barrel. In Asia this morning, both contracts have held on to those gains with no signs of profit-taking selling, implying that regional buyers are no longer in buy-the-dip mode.

With both the prompt and longer-dated futures curves in strong backwardation, and US weakness looking increasingly likely, it is hard to argue that oil prices are frothy, even at these levels. The technical indicators have moved back into overbought territory, but not markedly so, and it is clear that tight physical supplies are driving prices. If prices remain at these levels, the March 4th OPEC+ technical meeting will become more interesting. However, they do not appear overly concerned about either producer hedging or a resurgence in US shale.

Brent crude now has no technical resistance until USD71.25 a barrel, the January 2020 high. Pullbacks should be limited to USD64.50, and only a failure of USD62.50 a barrel suggests a more extended correction. WTI has resistance at USD65.80, the Jan 2020 high, followed by USD66.80 a barrel. Initial support lies at USD60.50, followed by USD58.50 a barrel.

Gold treads water once again

Gold finished almost unchanged overnight at USD1805.50 an ounce. That belied what was quite a volatile day, gold trading as low as USD1784.00 an ounce and as high as USD1814.00 an ounce. Gold can thank Jerome Powell’s dovish outlook for its late session comeback, but nagging doubts still persist over the yellow metal at these levels.

Despite a weaker US dollar and the heat coming of US yields, gold remains unable to stage a meaningful recovery. With the global recovery trade back in full flight, it seems only a matter of time before US yields move higher once again. That will once again put gold under pressure. Its role as an inflation hedge is seemingly now confined to wage/price spiral inflation, not cost/push transient inflation.

Gold has resistance at USD1817.00, followed by the USD1830.00 an ounce area. The region between USD1848.00 and USD1860.00 an ounce remains a formidable barrier for gold, containing the 50, 100 and 200-day moving averages. Initial support is at USD1784.00 an ounce, with the double-bottom 50% Fibonacci at USD1760.00 an ounce gold’s must-hold critical support. Failure dooms gold to further losses deep into the USD1600’s area.

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