Oil eases while gold rallies

Oil consolidation continues

Oil prices eased overnight, helped lower by a much higher than expected build in US API Crude Inventories. Brent crude fell 1.2% to USD67.30 a barrel, while WTI eased by 1.35% to USD63.70 a barrel. Both contracts are unchanged in Asia as the region takes a wait-and-see approach today.

Oil appears to be temporarily running out of upside momentum, and a deeper correction cannot be ruled out as speculative longs unwind trades. Market sentiment seems to be swinging towards reducing production cuts by OPEC+ next month, although OPEC+ has already dished out a harsh lesson on assuming anything.

With that in mind, a deeper retreat by Brent crude, possibly as far as USD62.00 a barrel, is possible, having retraced 50% of its last week’s already. A failure of USD66.70 will signal a deeper correction. The picture is similar for WTI, with a daily close below USD63.40, increasing the likelihood of a deeper sell-off, possibly as far as USD60.00 a barrel.

With physical markets in deficit for prompt delivery and the futures curves in backwardation, falls are likely to be short-lived. But such has been the rapidity and scale of oil’s recent rally that the ensuing corrections lower can replicate both.

Bottom fishers’ bond on gold

The firm bid to cover for the overnight US 3-year bill auction prompted bottom fishers to appear in force on gold. It staged an impressive 1.90% rally to USD1716.00 an ounce. The waning momentum in US index futures and some US dollar strength, has seen gold beat a modest retreat in Asia to USD1711.80 an ounce today.

Gold is by no means out of the woods, and the rally overnight reflects reduced liquidity and no small measure of optimism by badly burnt gold bulls. If the US 10 and 30-year bond auctions, or the US CPI, don’t play the game, gold will almost certainly retest its lows around USD1680.00 an ounce seen yesterday morning.

Gold’s nearest support is yesterday’s USD1676.00 lows with resistance nearby at USD1720.00 and USD1740.00 an ounce. That is followed by the USD1760.00 an ounce breakout level. Gold has a lot of wood to chop on the upside, and I continue to believe that gold will trade at USD1600.00 an ounce before it trades at USD1760.00 an ounce again.

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