Oil steady, gold climbs on lower yields

Oil trades sideways overnight

Oil prices finished modestly higher overnight as US API Crude Inventories fell by 2.6 million barrels, although both Brent and WTI traded in wide intra-day ranges. The sentiment was negative in Asia, but global recovery sentiment, helped by EU vaccination outlooks and upgraded IMF growth forecasts, lifted oil intraday. The supply overhang, though, stopped the rally in its tracks.

Brent crude and WTI finished the day 0.70% higher at USD62.70 and USD59.20 a barrel, respectively, although the intraday gyrations suggest that oil traders remain confused about the oil’s next directional move. Both contracts have added 20 cents a barrel in early Asia, in line with the recovery sentiment lifting asset classes elsewhere.

With growth and recovery on one side, balanced by US/Iran talks and an impending increase in production by OPEC+ on the other, oil is likely to continue vacillating aggressively in a wide range. In the broader picture, Brent crude’s critical levels at USD60.00 and USD65.00 a barrel. WTI’s are USD57.50 and USD62.50 a barrel. Investors and traders can choose their poison on an intraday basis in between, with intraday sentiment and flows dominating proceedings.

US yields lift gold

Gold continues to take its cues from the direction of US long yields and not the US dollar at the moment. Overnight, as US yields eased, gold staged another impressive rally, powering 0.90% higher to USD1743.50 an ounce. Some overnight profit-taking in Asia has pushed gold lower to USD1737.50 an ounce.

Although the rally has halted temporarily at the USD1745.00 an ounce resistance level, gold’s overall performance remains impressive, notably because it has formed a series of daily lows at the 61.80% Fibonacci near USD1685.00 an ounce. That keeps the premise that gold is creating a longer-term base firmly in place, and a rise through the 50.0% Fibonacci at USD1760.00 an ounce will confirm the technical picture.

Gold’s true test will come if US yields stage another sharp rise. If gold hangs on to its gains in that scenario, my confidence will rise even further.

In the near term, gold has support at USD1727.00 and USD1720.00 an ounce, followed by USD1705.00 an ounce. Gold has resistance at USD1745.50 and USD1755.00 an ounce, followed by the previously mentioned USD1760.00 an ounce area.

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