Oil recovers, gold has support

Oil recoups losses as dip buyers quickly emerge

Oil is trading marginally lower on Thursday after recovering much of the losses from earlier in the session when they were more than 2% lower. The rally has looked overcrowded for some time now so the correction we’ve seen doesn’t come as a great surprise. The question though is whether that’s it?

It’s interesting how quickly traders have bought the dip. I say interesting rather than surprising because this is a fundamentally bullish market and it was always likely that there would be support quite quickly. With oil prices having corrected only 5% after a 40% rally, I wonder whether it’s been a little premature.

The pullback has been aided by the surprising increase in inventories this week as well as reports that talks over the Iran nuclear deal will resume next month. While those will not likely conclude swiftly, it could ultimately mean a lot more oil coming back onto the market just when it’s needed and as prices were looking overextended.

Rate hikes should weigh on gold over the medium term

Gold is pushing above USD 1,800 once again, a level it has run into significant resistance around over the last week. A weekly close above here after last week’s failure could be a bullish signal and be indicative of a shift in sentiment over that time. That would be particularly strong if price also moves through this week’s highs around USD 1,810.

Another failure puts the emphasis back on the downside, more specifically USD 1,780, where price has found support this week. Although a break of the rising trend line now above here would suggest this support level will come under severe pressure, which could be a bearish signal in itself.

US yields have pulled back in recent days which has eased the pressure on the dollar and given gold another kick. Whether this can be maintained going into the meeting next week is another thing. Central banks around the world are moving towards tightening monetary policy, or have already started – Turkey aside – and market expectations have been growing by the week. That could continue to weigh on gold over the medium term.

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