Oil surges, gold rally fizzles

Oil prices rocket higher

It seems that the speculative longs who were culled last week can’t leave the oil trade alone, with Brent crude and WTI enjoying the second day of explosive rallies. Brent crude 2.60% higher to USD68.40 a barrel. Meanwhile, WTI rocketed 3.40% higher to USD66.05 a barrel. Both remain unchanged in Asia, with importers reluctant to chase markets higher.

A weaker US dollar helped the rally along at the periphery. Still, New York markets seem to have convinced themselves that the threat of Iranian oil returning to global markets isn’t such a concern anymore, and that a recovering global economy will slurp up the extra supplies. Oil markets may also be watching falling Covid-19 cases counts from terrible numbers to lower terrible numbers, making a recovery connection and pushing the buy button.

The whole rally of the past 48 hours is starting to look like the speculative herd-like behaviour sweeping the crypto-space. Unlike cryptos, energy is backed by real fundamentals, but the pace of the recovery looks like hot money looking for a home, and oil may spend the next couple of sessions consolidating these gains.

Brent crude has resistance at USD70.00, followed by USD72.00 a barrel, with support at USD66.50 and USD64.50 a barrel. The latter being a critical chart point that held beautifully last week. WTI has resistance at USD67.50 and USD68.00 a barrel, with support around USD64.00 and USD62.00 a barrel.

Gold may correct lower

Gold’s rally petered out last night, with prices almost unchanged USD1881.00 an ounce. Once again, an attempt at the USD1890.00 an ounce resistance level faded, and this morning, gold retreated 0.30% to USD1875.00 an ounce.

What is concerning for the gold rally is that both US longer-dated yields and the US dollar fell quite noticeably overnight. Both should have been strongly supportive factors for pricing. Looking at the strong rallies in the crypto-space yesterday, I can’t help but wonder if some weekend trading hedges are being reversed, pushing gold lower. There does appear to be some inverse correlation of late; how ironic.

A bitcoin bath aside, gold’s relative strength index (RSI) has moved into overbought territory on Friday and is usually a good indicator a corrective reversal is on the way. As such, gold may continue to unwind some recent gains, but its rally remains intact as long as the 200-day moving average (DMA) at USD1845.00 an ounce remains intact.

In the bigger picture, gold traced out a long-term structural low at USD1680.00 an ounce, and the longer-term uptrend remains in play as long as support at v1800.00 holds. Resistance remains at USD1890.00 an ounce, after which I expect USD1900.00 to give way quite quickly on option and algo buy-stops, rising to USD1920.00 an ounce.

USD1850.00 to USD1890.00 an ounce is likely to cover gold’s price action for the rest of the week.

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