Oil rises, gold drops below USD 1900

Oil rises in Asia

Oil markets were sold heavily overnight on the China risk-aversion trade, as growth fears fed through to lower oil demand calculations. Brent crude fell by 3.45% to USD 102.50 after testing and bouncing off the USD 100.00 a barrel region intraday. WTI fell by 3.50% to USD 98.60, having tested USD 95.50 a barrel intraday. In Asia, the cautious relief rally by China’s equity markets has lifted oil prices modestly, Brent crude rising to USD 103.50, and WTI rising to USD 99.40 a barrel.

I have reservations that potential European energy sanctions on Russian oil and natural gas can be ignored for long. Nor can the impact from the Ukraine war and Russia’s exclusion from global energy markets. Weaker China growth or not, energy supplies remain constrained with geopolitical risks very elevated. The week also has plenty of binary outcome risk from the week’s data calendar internationally, especially US earnings, which could swing prices either way.

With that in mind, I am sticking to my guns and continue to expect that Brent will remain in a choppy USD 100.00 to USD 120.00 range, with WTI in a USD 95.00 to USD 115.00 range. That said, a few more negative headlines from Beijing regarding Covid restrictions could shift the balance decisively lower this week.

Gold culls long positioning

Gold tumbled once again overnight, falling by 1.80% to USD 1898.00 an ounce. As expected, the loss of USD 1915.00 set off another round of stop-loss selling, pushing gold as low as USD 1891.50 intraday. In Asia today, the timid relief rally has spread to gold markets as well, which have climbed by 0.25% to USD 1902.80 an ounce. Nothing in the price action suggests gold’s sell-off has reached its nadir, the price action suggesting just the opposite.

The speculative longs, disappointed with a failure to break through USD 2000.00 remain at risk of more losses still. With the US dollar ignoring the modest reversals elsewhere retaining its strong inverse correlation. Gold has support at USD 1891.50 and USD 1880.00 an ounce. Failure of USD 1880.00 signals a capitulation trade targeting triangle support at USD 1835.00, and then USD 1800.00 an ounce.

On the topside, gold has resistance at USD 1915.00, USD 1940.00, USD 1980.00, and USD 2000.00 an ounce. I believe option-related selling at USD 2000.00 will be a strong barrier as evidenced by the price action last week. But ahead of that, gold still has a huge amount of wood to chop and probably needs some good news to come out of China.

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