Oil claws higher, gold closes in on 1900

Oil markets grind higher

Oil prices crept higher on Friday after the soft US payroll data, a trend that had continued throughout the week. An improvement in India’s Covid-19 case numbers and the ongoing recovery in the US and Europe ahead of their summer is supporting prices. OPEC+ is content to postpone tinkering with their production targets for now.

In the absence of any significant weekend drivers, oil prices have experienced some long-covering this morning, helped along by soft China export data. Brent crude has eased by 0.20% to USD71.45 a barrel, while WTI has edged 0.15% lower to USD69.30 a barrel in a quiet Asian session.

With some improvement in the pandemic situation in India and the recovery in the US, China and Europe remaining on track, oil should remain a buy on dips, with no warning signs coming from the technical momentum indicators.

Only a fall through USD70.00 a barrel by Brent crude, or USD68.00 from WTI, would signal a deeper downside correct. Brent crude remains on track to test resistance at USD72.00 a barrel this week and WTI at USD70.00.

Gold runs into headwinds above USD1900.00

A soft Non-Farm Payroll saw longer-dated US yields tumble on Friday, lifting gold 1.10% higher to USD1891.50 an ounce. However, that only retraced half of the 2.0%+ losses seen on Thursday and hints that gold’s upward momentum will be more sensitive to negative price inputs from now on.

Although gold is no longer overbought from a technical perspective, the RSI retreating to neutral territory after Thursday’s wipe-out, it appears that gold’s correlation to US yields is back. With an avalanche of inflation data due this week, notably from the US and China, gold may struggle to rally and maintain gains above USD1900.00 an ounce.

I expect gold to jump around in a choppy USD1860.00 to USD1900.00 range this week, with last week’s high at USD1817.00 an ounce unlikely to be retested this week.

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