Oil vulnerable, gold back below 1800

Oil steady but rapidly losing momentum

Oil prices are pretty steady on Tuesday after once again being pushed higher at the start of the week on some cold weather headlines, something we should become accustomed to over the coming months. With OPEC+ clearly in no mood to pump more than is currently planned, the market is looking very tight and these huge moves in natural gas are going to lift oil prices as well.

While I suspect oil prices still have further to run to the upside in the coming months, especially if we are facing a cold winter period, it’s looking like a very overcrowded trade at this point and the rally is rapidly losing momentum. Barring more bullish headlines, which is possible considering what we saw yesterday, we could see some profit-taking in Brent and WTI which would be healthy for the market.

China is currently recording cases of the Covid delta variant in 11 provinces, which may trigger some profit-taking in crude prices, given the country’s zero covid policy. Lockdowns in those areas with breakouts, despite the numbers being very small, could be enough to take some of the heat out of the oil market just as it’s losing momentum. Especially if those numbers tick higher and cases become more widespread.

Gold struggling after falling back below USD 1,800

Gold is once again struggling to hold above the USD 1,800 handle, with the price slipping more than 1% just as it appeared to take a significant step towards it. After giving up gains on Friday to close the week back below USD 1,800, the yellow metal rallied on Monday and ended the day back above, potentially setting it up to capitalise on the momentum and take a run at USD 1,833, a level it’s failed at repeatedly in recent months.

But it seems it isn’t to be, with gold sliding today and looking in bad shape despite the US dollar and yields being only marginally higher on the day. It doesn’t look good for gold which looks set to end the day below yesterday’s opening level, a negative technical setup that just compounds the red flag that appeared after Friday’s reversal.

A move below USD 1,780 and it starts to look really bad for gold, which has been in an upward trend throughout the month. This would break the trendline and potentially send it spiralling lower, with the next potential support appearing around USD 1,760.

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