Oil rally loses steam, gold awaits Powell speech

Oil stabilises after a bumper start to the week

Oil prices have seen their resurgence grind to a halt on Wednesday, following a remarkable start to the week.

A 15% decline between early July and late August has been followed by a 10% rally this week alone as new Chinese Covid cases fell to zero, putting at ease concerns about more severe restrictions and lower growth.

The rally began to falter on Tuesday as API reported a weekly draw of only 1.622 million barrels, a little short of expectations. Prices did recover early in Europe but once again ran into a wall as we moved into the US session. This came around the 50% retracement level – July highs to August lows – and shortly after the durable goods orders release.

What we’re probably seeing is just a bit of profit-taking in choppy trading, with the 50% level providing a perfect opportunity. We have seen a small bounce after EIA reported a larger drawdown of three million barrels but prices are still largely flat on the day.

Gold rally hangs on Powell comments

Gold is also seeing some profit-taking after a bumper couple of weeks.

The yellow metal managed to break above $1,800 but failed to generate any significant momentum. There was plenty of resistance just above here, with gold rotating off the 200-day SMA before heading lower.

A move above here would have been a very bullish signal and could still come if Powell fails to signal that a taper is likely this year. While the 200-day SMA was the turning point this time, this also falls around key Fibonacci levels and a significant area of resistance over the last couple of months. A move above $1,833 could be very bullish.

Taper talk around the September decision could kill hopes of $1,800 before it even had a chance at a serious run above it. Perhaps it’s this fear that’s triggering the profit-taking we’re seeing in gold after a very good run in recent weeks. The yellow metal has rallied roughly 6% since the flash crash, not a bad return considering how bad things were looking at that point.

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