Oil edges higher, gold eyes US inflation

Oil prices reverse Monday losses

The volatility in oil markets is somewhat higher than elsewhere, with Brent crude and WTI powering back to recent highs overnight. Fighting talk from US Secretary of State over Iran sanctions helped oil ignore a stronger US dollar as fears of a flood of post-nuclear-deal Iranian oil hitting markets faded.

Brent crude rose 0.85% overnight to USD72.05 a barrel, climbing another 0.80% to USD72.60 this morning. WTI rose 1.10% to USD70.00 a barrel overnight before rising another 0.65% to USD70.50 in Asia. The daily close above key levels of USD72.00 and USD70.00 a barrel is significant from a technical perspective, pointing to further gains ahead.

Interestingly, Reuters is running a story that China is moving to reduce oil imports by limiting the trading of oil quotas between PetroChina and teapot refineries. That should be bearish at the periphery, and the fact that oil prices have risen in Asia is another sign that even at these levels, oil demand remains strong.

Only a retreat below USD70.00 a barrel for Brent crude and USD68.00 a barrel for WTI suggests that the rally is over for now. Otherwise, inflation data or not, Brent crude should target USD75.00 a barrel in the week ahead and WTI USD73.00 a barrel.

Gold remains in a holding pattern

Gold tested USD1900.00 an ounce again overnight, but as the US dollar firmed, gold made a tactical retreat, falling 0.33% to USD1893.00 an ounce. Trading remains subdued in Asia, with gold rising slightly to USD1893.75 an ounce in a tranquil session.

Gold’s fate remains tied to the US inflation data tomorrow, and it appears to have settled into a USD1880.00 to USD1920.00 an ounce range. Only a failure of the USD1840 to USD1845.00 an ounce support zone calls the longer-term rally into question in the bigger picture.

A benign inflation print tomorrow is likely to be positive for gold, as it is moving inversely to US bond yields and the US Dollar at the moment. However, a further sell-off in the cryptocurrency space could see some old-fashioned risk rotation as well. Once USD1920.00 an ounce is cleared, gold’s next target will be the USD1960.00 to USD1965.00 an ounce region.

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