Oil Rallies and Gold Bugs Seize the Moment

Oil rallies on US Crude Inventories.

The tail-chasing by short-term speculators continued overnight, with oil rallying after the official US Crude Inventory and Gasoline Inventories remained in negative territory. President Biden’s call OPEC to increase oil production so that he doesn’t have to in the US rightfully fell on deaf ears.

Brent crude rose by 1.05% to $71.60 a barrel, edging lower to $71.45 in Asia. WTI rose by 1.25% to $69.30 a barrel, where it remains unchanged in moribund Asian trading. In the near-term, oils direction is being dominated by fast-money short-term speculators, and the prices gains of the past two days do not represent a change in structural sentiment.

Given the above, it is a little hard to predict oil’s short-term direction as the herd could change direction at any moment. Looking at oil on a longer-term basis, the global recovery remains on track, albeit in a now very uneven way dictated by the vaccine haves and the have nots. As such, I believe that oil is a buy on dips, although I acknowledge those dips have been frisky of late. Only mass virus lockdowns in China for an extended period would sharply change that narrative.

In the short term, Brent crude has resistance at $71.75 and $72.50 a barrel, with support at $70.00 and $69.00 a barrel. WTI has resistance at $69.50 and $70.00 a barrel, while support is distant at $66.50 a barrel.

Gold bugs seize the moment

Gold rallied hard overnight following on target US inflation data. The fast-money FOMO crowd were out in force in a show of hope over reality, sending gold 1.30% higher to $51.50 an ounce. That has left gold’s daily chart looking surprisingly like Brent crude and WTI’s over the past few sessions, with volatility probably not too different either.

While it is clear that many of those who were culled out of long positions in the Monday flash-crash rushed to reinstate longs overnight, it would be remiss not to point out some FOMO warning signs:

1. The US Dollar has hardly budged post the inflation data, easing only slight.
2. US yields have hardly budged either, holding onto most of this week’s increases.
3. The rally overnight moved the Relative Strength Index (RSI) out of its oversold territory, the only indicator I believed offered genuine support to gold in the short term.

If the US Dollar resumes its upward climb, the pressure on gold is likely to return, and one can be confident that the herd buying overnight will have zero tolerance for negative mark-to-markets.

Gold has gained one dollar to $1752.50 an ounce in Asia, holding above the critical $1750.00 level, but not convincingly. A fall back through $1745.00 is likely to see a rush for the tail-chasing exit door, with losses potentially extending to $1725.00 an ounce. Gold has resistance at $1765.00 an ounce, followed by $1800.00 an ounce. Some sideways consolidation between $1745.00 and $1765.00 an ounce would raise my bullish confidence levels, but I remain highly suspicious of the overnight rally for now.

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