Oil slides, gold rallies as US yields fall

Oil’s upward momentum continues to fade

With the US dollar going nowhere overnight, oil markets continued to focus on the upcoming OPEC+ production increases, starting in May, and India’s Covid-19 impact on global consumption. Both are symptomatic of a lack of new bullish drivers after the speculative rally of last week, and both Brent crude and WTI faded again overnight. That was helped along by an unexpected 0.60 million barrel increase in official US Crude Inventories, repeating the API data of the day before.

Brent crude fell by 1.90% to USD65.05 a barrel, remaining unchanged in Asia this morning. WTI fell 2.15% to USD61.05 a barrel, edging lower to USD61.00 a barrel in Asia. A lack of buyers of this dip regionally potentially indicates that regional buyers feel the sell-down has more to go. Given how quickly bullish momentum has faded this week, it is hard to argue with that premise.

Brent crude broke support at USD65.50 overnight, which becomes initial resistance today. Support remains at USD64.00 a barrel, but a daily close under that level signals a much deeper correction is in prospect. WTI looks at the more vulnerable contract, with only minor support at USD60.60 a barrel, and then clear air until USD57.00 a barrel.

Gold rallies once again

A strong US 20-year bond auction saw US yields fall slightly overnight, and that was enough to propel both gold and silver to another powerful intra-day rally. Gold rose 0.85% to USD1783.70 an ounce, and silver rose 2.75% to USD25.5000 an ounce. Both were likely aided by the 4.25% jump in palladium prices overnight.

Gold and silver are almost unchanged in a moribund Asian session with investors’ attention focused on regional equities today. Gold is now within shouting distance of its 100-day moving average at USD1803.00 an ounce. A daily close above this resistance being another powerful bullish technical signal. Interim support is at USD1775.00 an ounce, followed by USD1760.00 an ounce, its Fibonacci retracement.

Once again, I will repeat that gold’s fate is intrinsically tied to the direction of the US 10-year yield. If US 10-year yields remain at present levels or lower, gold’s rally will remain intact, and it is a buy on dips. However, the actual test of the rally’s longevity and the longer-term low of gold prices will come if US yields rise. Gold’s performance in this scenario has been wanting in 2021.

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