Oil rallies, gold rises slightly

Oil prices rally in Asia

Oil prices powered higher overnight as normal service was resumed on the global recovery, Saudi Arabia output cut trade. A larger than expected fall in US API Crude Inventories of 5.8 million barrels helped the rally along nicely. Brent crude rose 1.95% to USD56.70 a barrel, and WTI rose 2.10% to USD53.60 a barrel.

In Asia, the rally has continued unabated with Brent crude adding 1.05% to USD57.30 a barrel, and WTI also rising 1.05% to USD53.85 a barrel. Oil markets in Asia seem to be hitching a ride to the massive rise in LNG gas prices across the region. The cold snap in Northern Asia is increasing demand and lifting gas prices to record highs overnight.

Brent crude has carved through previous resistance at USD56.30 a barrel, and now becomes support with its next resistance at USD60.00 a barrel. Similarly, WTI has taken out its double top at USD52.70 a barrel, which now becomes initial support. Initial resistance is at USD54.45 a barrel after which WTI’s chart becomes rather intriguing, with no technical resistance until USD60.00 a barrel.

The Reuters report detailing US sanction threats on European companies involved with Nordstream-2 is likely to squeeze gas prices even higher in the short term. That should benefit oil by default, and at the moment, oil’s rally looks well equipped to withstand a stronger US dollar. A larger than expected drop in official US Crude Inventories this evening will also boost the rally.

Gold stages a modest comeback

Unchanged US yields and the ensuing fall by the US dollar granted gold a reprieve overnight. Gold climbed 0.60% to USD1854.80 an ounce and has gained another 0.28% to USD1860.00 an ounce this morning. Gold remains in the casualty ward, however.

From a technical perspective, gold is now boxed in nicely by its 100 and 200-day moving averages (DMAs), at USD1890.00 and USD1840.00 an ounce respectively. It would not surprise me in the least if those levels roughly defined gold’s range over the next few days. Support appears at USD1820.00 an ounce with critical support remaining at gold’s 61.5% Fibonacci at USD1760.00 an ounce. All bets are off for the longer-term uptrend if that level fails.

After a traumatic seven days for long positions, gold’s fate remains entirely in the hand of US yields. If inflation spikes in the US tomorrow night, pushing up yields, gold will almost certainly test below USD1800.00 an ounce. The weight of long positioning out there is likely to limit gold gains to around USD1900.00 an ounce though, with higher US yields and a stronger US dollar in prospect in the weeks ahead.

Footnotes from the edge

The second trump impeachment vote will occur later today in the House and may also enjoy some bi-partisan Senate support, assuming the Senate can be recalled. Whatever emotions a Trump impeachment may engender, it will be a low impact event for financial markets, even if it is a high impact media event. That’s all I intend to say about it for the rest of the week.

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