Oil remains unstoppable

Oil extends rally

Oil prices rallied powerfully once again overnight, as the election of a new hard-line president in Iran reduced the possibility of a nuclear agreement and Iranian sanctions would ease. A falling US dollar aided oil, and with fears of a flood of Iranian oil hitting global markets fading, Brent crude rose 2.20% toUSD74.80 a barrel, and WTI leapt 2.25% to USD73.05 a barrel.

Oil markets are continuing higher in Asia, retesting the overnight session highs. Brent crude rising 0.45% to USD75.15, and WTI increasing 0.20% to USD73.20 a barrel, a 26-month high for Brent and a 31-month high for WTI.

Oil’s immunity to price volatility in either the commodity or currency markets strongly suggests that demand is high and rising. By default, that indicates that the global recovery in the real world remains on track even as other asset classes chase their tails.

Brent crude should now target USD77.00 and WTI USD76.00 a barrel in the coming sessions, something that will become almost inevitable if the US short-squeeze has indeed run its course.

Gold rallies on weaker US dollar

Gold rose overnight as the US dollar retreated, as investors piled back into the global relation trade, they had been desperate to escape on Friday. It finished the New York session 1.05% higher at USD1783.00 an ounce. That sentiment continues in Asia this morning as regional investors hurry to follow New York’s overnight lead. Gold has risen 0.30% to USD1788.00 an ounce as a result.

Market sentiment across asset classes is flip-flopping aggressively this week, and I expect that to continue. Support at USD1760.00 has held impressively on Friday, while the USD1795.00 toUSD1800.00 zone, containing the 100-DMA, provides equally firm resistance. I expect gold to continue to range in a very choppy manner between these two levels until financial markets make their minds up about whether the global reflation trade has run its course, or not.

Not helping the quest for clarity, is that the week’s data calendar is very light. That leaves asset classes, including gold, at the mercy of headlines and intra-day sentiment swings.

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