Oil rises, gold falls sharply

Oil stages corrective rally

Oil prices reversed sharply overnight, despite a stronger US dollar and persistent noise from the White House and other nations about a coordinated oil reserve release into domestic markets. Brent crude rose 1.30% to USD 79.45 a barrel, and WTI rose by 1.10% to USD 76.45 a barrel. In Asia, both contracts have eased by 10 cents in quiet trading.

Brent has resistance at USD 80.00 a barrel, followed by USD 82.00 a barrel, while yesterday’s low at USD 77.60 and the 100-day moving average (DMA) at USD 76.70 provide support. WTI has resistance at USD 77.20 and USD 79.35 a barrel, with yesterday’s low at USD 74.80 and the 100-DMA at USD 74.30 providing support.

The SPR release story, whether by the US and/or other nations, appears to be losing momentum. In the bigger picture, the amounts allowable by law to be released are only enough to temporarily cap prices. There is no possible way that President Biden can spin the present oil market situation as a supply disruption, allowing a much greater SPR release. Oil is still flowing; it is just that prices are high. The oil sell-off is as much about the weight of speculative long positioning as it is about potential SPR releases.

Additionally, OPEC+ compliance remains well above 100%, and as a group, they missed their production targets last month. That implies that OPEC+’s capacity to hike production, even if they wished to, is limited to a few members. With speculative positioning somewhat more balanced, international travel reopening and lifting fuel demand, and with OPEC+ constraints in mind, any further sell-offs are likely to be short-term in nature and not sustained. Only Europe can throw a spanner in the works and if the northern hemisphere winter is a cold one, all bearish bets should be off.

Gold stages post-Powell whipsaw correction

I was impressively wrong about gold overnight and I really should have known better than turning bullish was going to end in tears. Following the re-nomination of Jerome Powell overnight, the Fed taper trade reignited and once again, rising US long-dated yields reasserted their dominance over gold prices, as the prospect of rising real yields reasserted themselves.

That led to a sharp fall by gold and when the critical USD 1832.00 to USD 1835.00 an ounce zone failed, it appeared to trigger a mass exodus of the algo and fast money through a very small exit door, as well as triggering other sell stop-losses. Once again gold has whipsawed the bulls in brutal fashion. Gold slumping by over USD 40.00, or 2.25% to USD 1805.00 an ounce. In Asia, some modest bargain hunting has seen it rise slightly by 0.17% to USD 1808.00 an ounce.

Having been burnt so badly, even if US yields retreat over the next few sessions before the Thanksgiving holiday, investors are likely to be much more cautious at re-entering long positions. Momentum will be muted and that means that the USD 1835.00 to USD 1850.00 region will cap gains this week, although I feel it unlikely, we will even get that far. If US yields remain firm this week, gold will be vulnerable to further losses through USD 1800.00. The 50-day, 100-day, and 200-day moving averages are clumped together between USD 1789.30 and USD 1794.00 an ounce. A daily close below this zone potentially signals deeper losses to USD 1760.00 an ounce.

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