Oil drifting, gold dips lower

Oil is noisy but sideways

Oil prices traded in a very wide range overnight, but like currency markets, once the histrionics passed and the dust settled, didn’t do a lot, remaining near to recent highs. Brent crude ranged between USD 119.00 and USD 125.00 before finishing just 1.05% lower at USD 120.85 a barrel. WTI traded between USD 116.70 and USD 123.70 before closing 1.75% lower at USD 119.00 a barrel.

The histrionics seen overnight are indicative of a market tying itself up in knots over the next big move for energy. Overnight, rumours circulated that President Biden would release more oil from the SPR, that Washington DC was considering a windfall tax on oil companies, that Federal fuel tax would be cut, and it was announced the President would visit Saudi Arabia. All of that was likely enough for the hit money to sell oil, but offsetting that is the chronic refinery capacity limits holding up diesel and gasoline prices globally, news that OPEC was missing its production targets by 176,000 bpd, and a spike in European natural gas prices. Overall, the supply/demand situation remains supply-constrained, and I can’t see that reality changing until the world economy slows sharply.

In Asia, prices are barely moved; no surprise when one looks at the overnight ranges. Brent is trading at USD 121.25, and WTI is trading at USD 119.05 a barrel. Unless you are a day trader with deep pockets and nerves of steel, getting involved ahead of the FOMC is likely a fool’s errand. The overnight low/highs for Brent crude at USD 119.00 and USD 125.00 are now immediate support/resistance. WTI’s range of USD 116.70 to USD 123.70 a barrel also marks support/resistance.

Gold continues to underperform

Gold eased lower once again overnight as the US dollar maintained strength and US yields moved higher. Gold finished 0.60% lower at USD 1808.50 an ounce as the tears of gold bugs washes away its one-month gains. In Asia, a slightly lower US dollar and rallying US bond futures have lifted the yellow metal slightly higher, gold gaining 0.30% to USD 1813.80 an ounce. Like everything else, its next directional move is going to be dictated by the FOMC meeting and statement tonight, and we can expect messy trading until then.

That said, the inverse correlation to the US dollar has proved as strong as ever it seems and the technical picture for gold has turned murky. Only a sharp US dollar correction lower is likely to alleviate selling pressure on gold. But a very hawkish FOMC tonight likely sees gold wave goodbye to its USD 1800 handle.

Gold has resistance at USD 1840.00 and USD 1880.00, the latter appearing an insurmountable obstacle for now. Support is nearby at USD 1805.00 and then USD 1780.00 an ounce. Failure of the latter sets in motion a much deeper correction.

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