Oil keeps climbing, gold steady

Oil rises once again in Asia

Despite the noise in equity and bond markets overnight, the panic in oil markets continues with prices rallying aggressively once again. Brent crude leapt 6.80% higher to USD 114.50 a barrel overnight, while WTI rallied 4.75% to USD 111.40 a barrel. The sense of panic continues once again in Asia, with Brent climbing 1.70% to USD 116.50, and WTI rising 2.20% to USD 113.95 a barrel.

Comments by Janet Yellen about plugging gaps in sanctions this morning will have given no comfort to Asian physical buyers scrambling for supplies. Nor will stories circulating that China has instructed state buyers to secure supplies of key commodities from energy to metals to food, and to not worry about the price.

I believe the bigger part of the squeeze though is from OPEC+ showing no interest in ramping up production, and most especially, international financial institutions refusing to finance any commodity purchase with Russia written in the paperwork, as well as international shippers avoiding Russia. Even if Western sanctions appear to be allowing energy payments to continue, Western financial institutions are taking no chances. In this respect, the private sector appears to be doing the heavy lifting on Russian sanctions on several fronts right now.

Although the relative strength index indicators (RSI) are grossly overbought on both contracts right now, geopolitics is driving markets and not traders. Brent crude is now in shouting distance of my initial USD 120 a barrel target and with markets unable to magically replace 5 million bpd of Russian oil exports, it seems when and not if it will hit this level. WTI could also potentially move to USD 120.00 in the sessions ahead.

What would change the dynamic would be any signs of progress at the Belarus border meeting today. I struggle to remember when asset markets were so keen to clutch at straws as they are now, but if we do see a glimmer of hope, a USD 10 a barrel fall by both contracts is not out of the question. The real question then is, do you buy the dip?

Gold maintains gains, but silver looks more golden

Gold probed USD 1950.00 an ounce in the early part of yesterday, only to fall from grace on Ukraine hopes and a surge higher by US yields, finishing the day 0.88% lower at USD 1928.50 an ounce. In Asia today, despite the rally in oil prices, haven flows are absent as gold eases another 0.20% lower to USD 1924.70 an ounce.

Gold’s price action remains concerning, even if it is still consolidating near the top of its recent range. Although the RSI has now fallen back from overbought territory, lessening the downside correction potential, gold’s inability to retest USD 1975.00 leaves nagging doubts. One thing is for sure, any sign of progress from the Belarus border meeting today likely sees gold plummet quickly back towards support at USD 1880.00 an ounce.

Conversely, the silver upside breakout I telegraphed last week continues to develop very nicely. Silver broke out of long-term resistance at USD 24.2000 an ounce, rose then fell and retested the breakout line and then rallied powerfully a technical analyst’s dream. Silver remains very near to its Ukraine highs at USD 25.2000 an ounce. A rise through USD 25.5000 signals a new leg higher in the greater rally targeting USD 31.0000, which only a fall through USD 24.0000 an ounce signals failure.

Silver might be a better risk hedge right now, even with its greater volatility and lower liquidity. Or a more esoteric route could be to sell the XAU/XAG ratio. Precious metals require nerves of steel and deep pockets at the moment; perhaps silver is the least worst choice to hedge risk?

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