Oil and gold head south

Oil prices collapse on UAE/OPEC comments

Oil’s volatility reached new levels of insanity overnight, with Brent crude trading in a USD 25 intra-day range. Oil prices were moving lower on Ukraine compromise hopes already from earlier in the day, when the UAE comments about asking OPEC+ to raise production to send oil prices into a tailspin. Brent crude finished 13.20% at USD 112.00 a barrel, with WTI collapsing 12.15% to USD 109.60 a barrel.

The UAE has since reeled back on its initial OPEC+ comments, the Iran nuclear deal is stalled, and Reuters is reporting that China’s state refiners are being urged to halt April fuel exports. That has seen nervousness return to Asian markets, pushing Brent crude 2.25% higher to USD 114.60, and WTI 0.85% higher to USD 110.55 a barrel.

I can only imagine that liquidity is shot to bits in the oil futures markets now, and picking technical levels is a bit meaningless. The overnight lows at USD 106.00 and USD 104.00 a barrel should provide initial support. If a perceived breakthrough in the Ukraine-Russia meeting happens this afternoon, both contracts will be back below USD 100.00 a barrel. However, the risks are skewed towards disappointment and evolving headlines negative headlines from the Ukraine situation and/or Iran and/or OPEC+. In which case, Brent crude will be back above USD 120.00 in the blink of an eye.

Gold is dumped from Love Island

If gold was a reality show contestant, it was unceremoniously dumped from the love island overnight, as the UAE-engineered slump in oil prices sparked a massive bottom-fishing rally in equities, lifting risk sentiment. That sparked a massive sell-off from haven buyers in gold, which slumped 2.80% to USD 1992.50 an ounce. Gold has continued slower in Asia, easing another 0.75% to USD 1978.00 an ounce, and it seems that there are plenty of stranded longs out there still from the last couple of days. The more gold falls right now, the greater the negative feedback loop from nervous longs.

I did say yesterday the rally by gold to new all-time highs would not be a straight line, but I can honestly say I wasn’t expecting this level of whipsawing. One silver lining is that the extremely overbought technical picture has now been unwound, leaving room for gold to gain once again once the culling of this week’s long positions has been concluded. Everything will depend on the outcome of the talks in Turkey this afternoon, and signals from OPEC+ over increased production. Gold could be at USD 1920.00 tomorrow, or back above USD 2020.00. I know which side my money is on.

Similarly, silver has also resolved its overbought technical picture as it plummeted by 2.35% overnight, taking out USD 26.0000 on its way to $ USD 25.7870 an ounce. Silver has eased further to USD 25.5900 today and I won’t rule out further losses to USD 25.0000 until the dust settles. That would still leave the longer-term bullish breakout intact.

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