Oil and gold tread in calm waters

Oil pauses for breath

Oil prices probed the upside overnight but retreated to finish almost unchanged in New York. Brent crude fell by 0.12% to USD73.75 a barrel, and WTI was unchanged at USD73.05 a barrel. In Asia, both contracts have edged higher once again despite US dollar strength, Brent rising 0.80% to USD75.35 and WTI by 0.30% to USD73.25 a barrel. Copper and platinum group metals have rebounded this morning, and I suspect that has dragged oil higher with them.

Although US API Crude Inventories fell overnight, oil failed to maintain its rally, and markets will closely monitor the official crude inventory data tonight. Attention is turning to next week’s monthly OPEC+ meeting with the mark split over whether OPEC+ will increase production. That fear is moderating oil’s price gains, although underlying demand in the physical market means that any corrections lower will remain shallow and short.

Brent crude should now target USD78.00 and WTI USD76.00 a barrel in the coming sessions, despite OPEC+ fears, something that will become almost inevitable if the US short-squeeze has indeed run its course. The price action, however, may be much more two-way than uni-directional ahead of OPEC+ next week.

Gold treads water

Another market that appears concerned that talk of tapering is not over is gold. Gold’s attempted rally overnight quickly ran out of steam, leaving it finishing 0.23% lower at USD1778.00 an ounce in New York. Gold has risen a modest 0.18% to USD1782.00 an ounce in Asia in another session of directionless trading.

Market sentiment across asset classes is flip-flopping this week, and I expect that to continue to a lesser degree now that Powell has steadied the ship. Support at USD1760.00 has held impressively on Friday, while the USD1795.00 to USD1800.00 zone, containing the 100-DMA, provides equally firm resistance. A break of either of these support/resistance zones will signal gold’s next directional move.

I expect gold to continue to range in a very choppy manner between USD1760.00 and USD1800.00 an ounce for the remainder of the week, until financial markets make their minds up about whether the global reflation trade has run its course.

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