Oil slides, gold whipsaws

Crude Inventories and Clarida clatter oil

Vice-Chairman Clarida’s overnight comments pushed the US dollar higher, weighing on an already nervous oil market looking at the global delta-variant numbers. However, the official US Crude Inventories delivered the knockout punch as they surprised markets by rising by 3.626 million barrels. (-4.1 Mio exp) Markets completely ignored an equally significant tumble in gasoline stocks of -5.3 million barrels, sending Brent crude 2.80% lower to USD 70.30 a barrel. WTI, meanwhile, collapsed by 3.10% to USD 68.05 a barrel.

Some bargain hunting is occurring in Asia today, with both contracts rising by 0.50% to USD 70.60 and USD 68.40 a barrel, respectively. The enthusiasm of Asian buyers suggests we are now in the zone where the physical market sees value, although the technical picture tells more of a dead cat bounce.

I continue to believe that material sell-offs in oil will be short-lived and followed by equally vigorous rallies; a powerful US Non-Farm Payrolls tomorrow would deliver that scenario. Brent crude has support at USD 70.00 a barrel, and then its 100-DMA just below at USD 69.70 a barrel. Failure of the 100-DMA could see another reactionary spike lower, potentially reaching the 20th of July low at USD 67.50 a barrel; however, this is not my base case.

Similarly, WTI has support at USD 68.00 a barrel, followed closely by its 100-DMA at USD 67.10 a barrel. Again, failure of the latter could see a snap reaction lower targeting the 20th July low at USD 65.10 a barrel. Fortune favours the brave, and in the bigger picture, the delta-variant is only slowing and not halting the global pandemic recovery. With that in mind, if we see those latter reaction targets, I could think of worse places to get long.

Gold has a tumultuous overnight session

With the resulting falls in US yields and the greenback, the soft US ADP Employment data sparked an aggressive gold rally overnight. Gold rose by 21 dollars intra-day to USD 1831.50 an ounce before the Clarida comments sparked a rapid fall from grace. With US yields and the dollar whipsawing higher, gold gave back all of its gains to finish almost unchanged at USD 1812.00 an ounce.

To say that gold’s price action was a disappointment is an understatement. Gold investors clearly have zero appetites for any sort of intra-day losses, as the price action demonstrates. It also highlights that gold has become a purely inverse US dollar/yield play and that traders would probably find more joy trading them than gold at the moment.

The price action was so disappointing that I cannot help but feel that the balance of risks has now shifted to further downside corrections, which robust Non-Farm Payrolls will likely deliver.

From a technical perspective, gold has traced out six daily highs between USD 1830.00 and USD 1834.00 an ounce over the past month, suggesting that this zone now forms formidable resistance. Gold has nearby support at a series of daily lows around USD 1805.00 an ounce, traced out over the past week. That is followed by the 100-DMA just behind at USD 1804.00 an ounce and then the critical USD 1790.00 an ounce region.

Gold is unchanged in Asia, but given the price action overnight, failure of USD 1804.00 will probably spark more selling from nervous longs. A daily close below USD 1790.00 signals a deeper correction, targeting USD 1750.00 an ounce. Gold looks like it is a sell on rallies above USD 1820.00 now.

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