Oil rises, gold punches past USD 2000

Oil prices stay firm

Oil prices remained firm overnight, finishing around 4.0% higher for the day after President Biden announced a unilateral ban on Russian energy imports. The move was well telegraphed, with oil markets having already moved higher this week in anticipation. What stopped any further squeeze was the entirely sensible decision by Europe not to follow the US lead. Quite simply, the Eurozone cannot instantly replace Russian imports, but one can be sure they will over time. But European markets remain vulnerable to unilateral energy bans coming the other way from Moscow.

Brent crude finished 4.0% higher at USD 129.10 a barrel overnight, with a still nervous Asia pushing prices 1.70% higher to USD 131.30 in Asia. WTI rose 3.70% to USD 124.75 a barrel overnight, climbing another 1.20% to USD 126.30 a barrel in Asia today.

A grasping-at-straws sentiment rally around the Ukraine and Russia could still send Brent crude and WTI USD 10 lower quite quickly, especially as both are grossly overbought on the technicals. Any dips are likely to be short-lived, however.

There is plenty of doom and gloom going around about oil prices now. We can ignore Russia’s USD 300 a barrel prediction because we can’t believe anything Russia says. As for all the USD 200 a barrel prediction, that would certainly cause a recession around the world, but I harbour doubts we will see those levels. The phones will be busy in Caracas, Riyadh and Tehran right now, not to mention US shale HQs. The price for replacing Russian energy will be some countries and sectors coming in from the cold, and I have no doubt that will happen. You can be sure phones are ringing in previously too hard Malaysia and Indonesia as well. Still, a switch can’t magically be switched-on to increase production around the world; that will take time. I don’t rule out USD 150.00+ Brent crude, but unless Russia ups the stakes or the West decides to go no-fly zone over Ukraine, I am not having USD 200 nightmares at night.

Gold is really loving stagflation

Stagflation and gold are better bedfellows than anything you will read in 50 Shades of Grey, and once gold comprehensively broke USD 2000.00 overnight, the rally accelerated sharply as expected. Gold rocketed 2.63% higher to USD 2050.00 an ounce, edging slightly higher to USD 2053.00 in Asia. The stagflationary factors that are so supportive of gold are persisting and will remain so.

Gold is now very overbought on the technical indicators and is vulnerable to a corrective move lower. That should be limited to the USD 2000.00 an ounce region and once resistance at USD 2070.00 is cleared, we should see a test and rally through USD 2100.00 an ounce. A series of all-time highs beckons for gold, although, as is its wont, it will not be in a straight line.

The silver rally I telegraphed, through either wit or luck, continues to develop nicely. The breakout of the multi-month triangle has shown even more promise than gold’s rally, silver rising 2.85% to USD 26.4100 overnight. It has risen to USD 26.7150 an ounce in Asia, and like gold, is overbought technically and vulnerable to a corrective sell-off. It remains on track from a technical perspective, to continue to rally over the coming week(s) towards its target of around USD 31.0000 an ounce.

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