Crude punches past USD50, gold consolidates

Brent crude breaks USD50.00 a barrel

Like currency markets, oil markets continued piling into the global recovery trade overnight, with both Brent crude and WTI powering to 18-month highs. Brent crude rose 2.75% to USD50.40 a barrel, and WTI leapt 2.80% higher to USD47.95 a barrel.

Having shrugged off the enormous rise in US crude inventories on Wednesday, and ignored the fiscal stimulus stalemate in Washington DC, oil markets now have an undeniable bullish momentum. In all likelihood, a structural low in Brent below USD40.00 a barrel has now traced out, with further price gains ahead.

Brent crude has resistance at the overnight highs around USD51.00 a barrel, with a medium-term target of USD54.00 a barrel. Support lies at USD48.00 and USD47.00 a barrel, with only a failure of the latter delaying the rally. WTI has resistance between USD47.70 and USD48.00 a barrel, followed by USD48.60 a barrel. A move higher through USD50.00 a barrel signals more gains to USD55.00 a barrel in Q1. Only a fall through USD44.00 a barrel delays now.

OPEC+ discipline may become an issue if the rally in prices continues rapidly, but this shouldn’t become an issue until the first review meeting at the end of January.

Gold consolidates after a torrid week

The whipsaw price action in gold across the week appears to have run its course, with gold easing by 0.20% to USD1836.50 an ounce overnight. It remains unchanged in Asia as investors’ attention remains focused in other asset classes. Following Monday’s equally dramatic rally, Wednesday’s dramatic fall appears to have culled the short-term positioning late to the trade, leaving gold more balanced at these levels.

Gold appears to be following the direction of the Nasdaq more closely than the other US stock markets, and more downside pain could occur if the Nasdaq finishes lower this evening. In the bigger picture, though, the thesis remains the same. Gold traced out a structural low last week at USD1760.00 an ounce, the 50% Fibonacci of the March to September rally. Only a close below that level signals a deeper correction.

Gold has support at USD1820.00 an ounce, followed by the 200-day moving average (DMA) at USD1809.50 an ounce. Gold has resistance at USD1850.00 an ounce, followed by the 50-DMA at USD1875.00 an ounce. From here, gold is likely to trade in a choppy USD1820.00 to USD1860.00 an ounce range into next week’s FOMC meeting, the outcome of which should be supportive of gold prices.

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