Oil falls, gold remains volatile

Oil awaits OPEC+ after a tough night

Oil prices were in full retreat overnight as markets today, await the outcome of today’s OPEC+ meeting. Oil markets ignored a weaker US dollar and instead ran for cover on two developments. Firstly, official US EIA Crude Inventories unexpectedly rose by 3.3 million barrels, with gasoline and distillate inventory moves balancing each other out. Cushing stocks fell once again to multi-year lows, but this was ignored. More importantly, US/Iran talks are going to resume at the end of the month and the prospect, however remote, of a rush of Iranian crude, prompted a sell-off in oil markets.

Brent crude fell by 3.35% to USD 81.30 a barrel, while WTI fell by 3.50% to USD 83.10 a barrel. In Asia, Brent has remained steady, while WTI has slipped below USD 80.00 to USD 79.90 a barrel. The US/Iran news has likely wiped out any last hope that OPEC+ will increase production targets, which may be supportive later in the session. With speculative markets heavily skewed to long positioning, this culling could continue for another session although I suspect once OPEC+ is out of the way, physical buyers will return, as oils fundamentals remain very constructive.

Both Brent and WTI closed on their lows overnight, an ominous sign for short-term prices. A fall by Brent crude through USD 81.00 does open the possibility of a spike to USD 79.00 a barrel. Resistance is distant at USD 84.00 and USD 85.10 a barrel. WTI fell through its 2-month trendline support at USD 82.30 overnight, which becomes resistance, followed by USD 83.00 a barrel. More immediately, a fall though USD 79.50 signals another leg lower that targets the USD 76.00 to USD 77.00 a barrel region.

Gold’s price action worsens

Gold had a volatile session overnight, spiking as low as USD 1760.00 an ounce, with the wider USD 1770.00 to USD 1810.00 range barely holding. Gold finished the day 1.0% lower at USD 1770.00 an ounce, before retracing some of those losses in Asia, rising by 0.35% to USD 1776.00 an ounce. The price action was especially negative given that the US dollar actually fell overnight, and Jerome Powell gave a master class in dovish fence-sitting. A firming of the entire US yield may have been the culprit, although the price action was relatively modest.

Whichever way one looks at it, gold’s price action has been uninspiring this week and even more so overnight, and the balance of risks has unambiguously swung back to the downside. Only an extremely weak US Non-Farm Payrolls print tomorrow night will give gold a chance to recapture USD 1800.00 an ounce. Today’s rally in Asia looks like a dead cat bounce.

Gold fell through its one-month trendline support on Friday, which is today at USD 1800.00 an ounce. That is followed by resistance around USD 1810.00 and then USD 1835.00 an ounce. Failure of USD 1760.00 and USD 1750.00 should see gold retest USD 1720.00 an ounce.

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