Oil jumps, gold directionless

Oil surges on lower omicron concerns

The Fauci comments overnight saw more fast money returning to the long oil trade as markets started pricing a resumption of the global recovery and higher oil consumption. Brent crude leapt 5.40% higher to USD 73.65 a barrel, while WTI jumped 5.45% higher to USD 70.00 a barrel. In Asia, Brent has added 0.55% to USD 74.05, and WTI has added 0.90% to USD 70.65 a barrel.

Both contracts have quite a bit more upside potential, assuming the mild omicron reality is correct. The technical indicators are neutral but most especially, despite OPEC+ raising production quotas once again this month, the grouping continues to struggle to even meet its previously outlined increases. Virus volatility aside, that and OPEC+’s optionality over immediately changing the targets from the last meeting, which remains officially open, should provide a healthy modicum of support on any material pullbacks. Oil will be immune to a more hawkish FOMC next week.

Both contracts have recovered above their respective 100-day moving averages and if investor sentiment remains positive Brent crude can retest USD 76.00 and WTI USD 73.00 before the end of the week. I continue to believe that the lows of last week could well be the lows for the next year.

Gold remains marooned

Gold had another directionless session as it remains forgotten by the investor community, particularly those bullish traders who have been so badly whipsawed over the last month.  Gold drifted 0.30% lower to USD 1778.50 an ounce overnight as US yields firmed, only to reverse that in Asia, rising 0.20% to USD 1782.50 an ounce.

In the bigger picture, gold looks set to trade in a rough USD 1770.00 to USD 1800.00 an ounce range this week, unable to sustain momentum above or below those levels. The 50,100 and 200-day moving averages (DMAs), clustered between USD 1791.00 and USD 1793.50 provides immediate resistance, followed by USD 1800.00. Support lies at USD 1770.00 and USD 1760.00.

Gold could still stage a modest recovery this week, but if the US yield curve continues steepening, that may never eventuate, especially if US CPI data on Friday is likely to print around 7.0%. Gold remains a sell on rallies to USD 1810.00. The balance of risks still favours a move lower towards USD 1720.00 an ounce.

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