Oil under pressure, gold stays steady

Iran weighs on oil prices

Brent crude and WTI have now retreated around 7.0% from their highs at the start of the week as markets with heavy speculative positioning were punished by association with cryptocurrencies mid-week. Notably, oil prices have failed to recover and have continued down, with the spectre of a return of Iranian oil to the international market weighing on a long speculative market.

Overnight, Brent crude another 2.50% to USD65.00 a barrel, while WTI fell by 2.20% to USD61.95 a barrel. In Asia, some short-covering has lifted prices modestly by 0.40% to USD65.25 and USD62.20, respectively.

Both contracts are sitting on support at these levels, and the market’s reaction to the US/Iran news suggests the downside remains the weaker side. Even more so, as oil has fallen as the US dollar has also weakened.

Brent crude has resistance at USD67.00, with support nearby at USD64.80 and USD64.60 a barrel. Failure opens a deeper correction that could extend as far as USD62.00 a barrel. WTI’s first resistance is USD64.00 a barrel, with support nearby at USD61.70 a barrel. Failure opens more profound losses to USD60.65 and possibly USD58.00 a barrel.

Although oil’s outlook remains favourable, even with the return of Iranian production to international markets, its near-term direction rests with how many weak speculative long positions are remaining in the market. If they have been sufficiently culled, oil prices should stabilise here; otherwise, the risk is that a more aggressive thinning of the herd will follow.

Gold remains firm

Gold has weathered the storms of this week handsomely, and a fall in US yields and the US dollar overnight lifted it higher by 0.40% to USD1877.00 an ounce. Notably, gold fell in early Asia but has quickly recouped those losses and currently sits at USD1876.50 an ounce. That suggests that investors are comfortable at these levels, buying gold on any sort of dip.

Assuming tonight’s data reinforces that inflationary fears are overblown for now, gold looks poised to test resistance at USD1890.00 an ounce, followed by USD1900.00 an ounce. A move through USD1900.00 is likely to spur option-related and algorithmic buying, pushing it to USD1920.00 an ounce. Support lies at USD1965.00 and USD1953.00 an ounce. Only a failure of the significant support level and 200-day moving average at USD1845.00 an ounce suggests the rally is over for now.

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