Oil takes breather, gold dips below 1900

Oil markets pause for breath

Brent crude and WTI were almost unchanged at USD68.25 and USD66.15 respectively overnight, despite ostensibly bullish US official crude inventories data. The risk-exposure reduction seen elsewhere was evident in Asia, though, both contracts falling 0.50% to USD68.40 and USD65.80 a barrel.

Oil markets will likely use the throwaway excuse of the day, Iranian oil or US inflation to explain away the fall. However, given oil has retreated in Asia after bullish US inventory data, I believe the real reason is simply that speculative longs are trimming positions ahead of the US data dump tonight. When one considers the last week’s price action, it is easy to conclude that the speculative longs that were culled last week have quickly gotten back in again. They are now slightly nervous, given the pace of the price recovery.

Some further trimming of long positions will probably occur into the US data series this evening, but oil’s price fundamentals remain strong, even if momentum has wavered. Oil should be a buy on dips into the end of the week.

Gold investors book profits on long positions

The falling momentum elsewhere, and the rise in US yields, saw gold’s rally through USD1900.00 to USD1913.00 an ounce run out of steam overnight. Gold retreated, finishing 0.13% lower at USD1897.00 an ounce for the session. In Asia, activity has been muted, with gold meandering slightly higher to USD1898.00 an ounce.

Gold remains vulnerable to a deeper pullback from these levels as its Relative Strength Index (RSI) remains in overbought territory, a risk signally by me earlier in the week. The RSI usually signals either a period of sideways consolidation or a sharp correction to the underlying trend.

Gold has support at USD1875.00, limiting any pullback. I cannot entirely rule out a short and sharp fall to the key USD1845.00 an ounce support zone. Unless the US data surprises tonight one way or the other on the inflation expectations front, gold should consolidate in a USD1875.00 to USD1910.00 range for the rest of the week.

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