Oil slides, gold rises on risk apprehension

Oil prices tank in Asia

Oil prices are in full retreat in Asia after a very soft overnight session, and it looks as if the long-awaited downside correction is now in progress. Overnight, official US Crude Inventories unexpectedly rose by 4.27 million barrels, sending shivers through the speculative long community. Markets ignored the huge drops in gasoline stocks, and the very concerning 3.90 million-barrel fall in Cushing Hub stocks to concentrate on the headline number. That again is an indication of a market heavily long and losing momentum.

Probably the main reason oil has fallen, apart from the speculative long excess, is the news that Iran said it would resume nuclear talks with world powers by the end of November. The prospect of a full return of Iranian crude to world markets would be a bit of a game-changer and appears to be the main reason Asia is selling today, combing with a culling of speculative long open-interest.

Overnight, Brent crude fell 2.30% to USD 84.15 barrel. WTI slumped by 2.60% to USD 84.15 a barrel. Notably, Brent crude has smashed through trendline support at USD 84.05 this morning, with WTI testing its multi-month trendline support in Asia today. Both represent a bearish development. Brent crude has fallen by 1.60% to USD 82.80 in Asia, with WTI retreating by 1.25% to USD 81.10 this morning so far. A close-by Brent crude below the USD 84.05 trendline would be a bearish technical development. It has support at USD 82.00 and USD 80.00 a barrel. WTI is hovering just above its USD 81.05 trendline at USD 81.15, with its next support at USD 79.50. Resistance is at USD 82.00 a barrel.

I have been waiting for this correction to occur for a while now and losses for Brent crude and WTI could easily extend to USD 81.00 and USD 79.50, with WTI potentially playing catchup to Brent. The Iran news, if it is indeed true, could keep both contracts lower over the session. However, I expect physical market short-term fundamentals to reassert themselves by early next week at the latest, if not by tomorrow, and for oil prices to start rising once again. Notably, the relative strength indexes (RSIs) on both contracts have plunged back to neutral territory, further improving the buy-the-dip picture for the brave.

Gold’s rises as global nerves increase

Gold prices rose overnight as US 10-year yields slipped and risk sentiment faltered generally. Gold rose 0.23% to USD 1797.00, before climbing another 0.20% to USD 1800.00 an ounce in Asia as investors’ nerves become frayed. Notably, gold held its multi-week trendline support at USD 1782.50 an ounce exactly overnight, a bullish technical development.

In the near-term, gold looks set to benefit from more haven flows and if the trendline at USD 1782.50 and $1780.00 an ounce hold, gold’s price action remains constructive. That said, investors’ attention seems to be turning towards next week’s FOMC. The expectation of the announcing of the Fed taper will probably limit gains. Gold is likely to trade in a USD 1780.00 to USD 1820.00 an ounce range ahead of the FOMC meeting. A move above USD 1835.00 would be a powerful bullish technical signal though, but my base case is that gold’s retreat resumes into next week after the FOMC.

Failure of USD 1780.00 therefore, likely signals deeper losses targeting USD 1750.00 in the first instance. Conversely, if gold overcomes formidable resistance into USD 1835.00, it will signal further gains to USD 1900.00 and possibly USD 2000.00 in the coming weeks, as the break would trigger an inverse head-and-shoulders formation.

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