Oil, silver, and gold climb on back of US dollar

US API Inventories lift oil prices

A weaker US dollar continued to put a floor on oil prices overnight, but it was the US API Crude Inventory data that propelled them higher. API Crude Inventories fell by a massive 8.60 million barrels, following on from last week’s 6.80 million falls. That lifted Brent crude by 1.1% to USD44.30 a barrel, and WTI by 1.70% to USD41.60 a barrel. Both contracts remain unchanged in another dull Asian session.

All eyes will now be on official US Crude Inventory data tonight, following its equally impressive 10.6 million-barrel fall last week. Crude Inventories are expected to fall by 3 million barrels tonight; however, the API data suggests it could be quite a lot more.

A much larger fall will all but confirm that US oil production has fallen materially, by possibly millions of barrels a day. That could be enough to overcome Covid-19 slowdown fears, and force oil prices higher, and out of their one-month summer doldrums.

I should emphasise though, that despite the moves higher overnight, both Brent crude and WTI remained firmly ensconced in their one-month ranges, as their long summer of love continues. Critical resistance remains at USD45.00 a barrel for Brent crude and USD42.70 a barrel for WTI. In WTI’s case, this is now also its 200-day moving average.

Only a strong close above these levels signals that oil’s bullish uptrend has recommenced. Until that is confirmed, possibly tonight, both contracts remain in range-trading mode. Traders should take care not to confuse hope with reality.

Gold and silver rally aggressively

As previously stated, gold broke USD2000 an ounce overnight, climbing to a new record high at 2020.00 an ounce. Silver, in the meantime, rose an even more impressive 7.0% to trade at USD26.0000 an ounce. Lower US yields and an ensuing weaker US dollar was all the cues markets needed to force both metals higher.

The bullish cash remains overwhelming for both metals, even at these lofty heights. US real yields continue to fall deeper into negative territory, with a slather of Covid-19 and Washington DC impasses thrown in for good measure.

Pullbacks are possible from here, quite possibly deep ones; especially if the dollar corrects higher on the currency markets versus the majors, as the charts suggest. Both precious metals, though, should find plenty of willing buyers on dips to USD1980.00 and USD24.0000 an ounce respectively.

Silver’s next upside technical targets are USD28.0000 and USD32.0000 an ounce. Gold is in uncharted territory, and so I will pick USD2100.00 an ounce as a nice round number. I am continuously asked how high gold can go; such is the target and data-driven world we live in now. That, to me, is a fool’s errand. Suffice to say; as I glance at the government deficits and the size of quantitative easings globally, my answer is that gold can go higher, much higher. Beware of the potentially emotional pullbacks within the longer-term trend, however. The next major stock market sell-off will test investors’ precious mettle (sic) for sure.

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