Oil climbs on OPEC+, gold directionless

OPEC+ sends oil higher

OPEC+ held fast to their 400,000 bpd per month production increase schedule at their meeting yesterday with various excuses, official and unofficial promulgated, including a Covid 4^th wave, seasonal factors, natural gas distorting oil prices and giving “certainty” by not responding to short-term market inputs. Whichever and whatever you chose to accept, the net result sent Brent crude to 3-year highs.

Brent crude surged higher by 2.75% to USD 81.30, and WTI charged 2.50% higher to USD 77.60 a barrel. With mainland China still away, trading has been muted in Asia. Both contracts have made modest gains, Brent rising 0.30% to USD 81.60 and WTI rising 0.25% to USD 77.80 a barrel. Natural gas prices have risen by 1.0% in Asia this morning, and with weather-related coal production disruptions likely in India and China, it is hard to construct a bearish case for oil. In all likelihood, buyers will be lining up on dips now, meaning any sell-offs, no matter how violent, will be short-lived in duration. Winter is coming.

Brent crude will find plenty of support on dips to USD 79.00 and USD 76.00 a barrel and after clearing the overnight high around USD 82.00, should have the 2018 high around USD 87.00 a barrel in its sights. WTI will be well supported on dips to USD 75.00 a barrel, with resistance at USD 78.50. The charts suggest that a rally to USD 84.00 a barrel is not out of the question once USD 78.50 is convincingly overcome.

The only caveat on further immediate rallies is that the relative strength indexes (RSIs) on both contracts have entered overnight territory. That may signal some daily pullbacks this week but does not change the underlying bullish case for oil.

Gold struggles for direction

Gold rose 0.45% to USD 1769.50 overnight as the US dollar weakened. However, a rising US dollar in Asia has seen gold give back all those gains, falling by 0. 62% to USD 1758.50 an ounce. It is clear that now, gold remains mostly an inverse US dollar play, with a dollop of risk-hedging buying providing occasional support.

I am expecting gold to find support on dips to USD 1750.00 this week, as investor inflation and US fiscal fears increase. Ahead of the Non-Farms I am looking at a choppy USD 1750.00 to USD 1785.00 range. None of that will save gold if the US Non-Farm Payrolls are firm on Friday, putting the Fed taper, and higher US yields back in play.

Gold has support at USD 1750.00 followed by a double bottom at USD 1722.00 an ounce. Initial resistance is at USD 1780.00/1785.00 an ounce. Gold will face far more formidable resistance in the USD 1800.00 to USD 1808.00 an ounce zone, technical resistance and housing the 100 and 200-day moving averages.

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