Oil drifting, gold steady

Oil markets are surprisingly quiet

Oil markets traded sideways overnight, with China’s growth fears offsetting a large drop in official US crude inventories overnight. With the geopolitical news ticker fairly quiet, oil markets contented themselves with consolidating the previous day’s gains. Brief forays to the downside were quickly reversed leaving Brent crude almost unchanged at USD 107.30 a barrel, and WTI at USD 102.40 a barrel.

In Asia, the lack of volatility overnight has left local traders in a calmer frame of mind, reducing the inclination to chase prices higher. Brent crude is just 0.40% higher at USD 107.70, and WTI is 0.60% higher at USD 103.00 a barrel. It seems that regional buyers are happy to wait for pullbacks and a quiet session appears likely for Asia.

I continue to expect that Brent will remain in a choppy USD 100.00 to USD 120.00 range, with WTI in a USD 95.00 to USD 115.00 range. Brent crude has further support at USD 96.00, and WTI at USD 93.00 a barrel. A potential European oil embargo on Russia next week after this weekend’s French elections could see a move towards the top of the range.

Gold’s steady overnight

Gold prices remained steady overnight, but notably, it failed to rally as US yields and the US dollar both retreated. Gold booked a modest 0.40% gain to USD 1957.50 an ounce, which it has mostly unwound in Asia as the US dollar rebounds. Gold has fallen by 0.30% to USD 1951.80 an ounce in Asia.

Gold still looks vulnerable and failure of USD 1940.00 could see more speculative long positions getting culled and gold falling to USD 1915.00 an ounce. However, gold’s price action in the past few weeks has been quietly signalling those risks, be they inflation or geopolitical, have been increasing. Nothing I can see has changed that fact, and thus, the deeper correction lower could be an opportunity to load up again at much better levels.

As for the technical picture, gold still has resistance at USD 2000.00 an ounce, and I believe option-related selling there will be a strong initial barrier. However, if USD 2000.00 is cleared, gold could quickly gap higher to USD 2020.00 an ounce, and potentially, retest USD 2080.00 an ounce. Failure of USD 1915.00 and USD 1880.00 could see a deeper loss to USD 1800.00 an ounce.

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