Oil rebounds, gold eyes USD 1835

Oil’s recovery continues

Oil prices shot higher once again overnight, aided by a large drop of 2.50 million barrels by US API Crude Inventories. The Biden/SPR story appears to be losing momentum leaving markets to focus on oil’s strong physical fundamentals once again. Regarding the US SPR releases, President Biden’s hands are somewhat tied here. A large release can only be authorised if supplies are disrupted, not if prices rise. It would be hard to spin the former argument as a supply disruption emergency. A tactical release authorised by the President is limited to 30 million barrels over a 60 day period, certainly not enough to cap oil’s rally.

Brent crude finished 1.75% higher at USD 85.10 a barrel, and WTI leapt 2.80% higher to USD 84.50 a barrel. Long-covering from the overnight rally has pushed both contracts slightly lower in Asia, to USD 85.05 and USD 84.20 respectively.

Brent crude has resistance at USD 86.00 and USD 86.70, with support at USD 83.30 and USD 82.50 a barrel. WTI has resistance at USD 85.00 and USD 85.50, with support quite distant at USD 82.00 a barrel after the impressive overnight rally.

Gold prepares to test major resistance

A weaker US dollar and lower US yields once again saw gold move slightly higher overnight. It flirted with the base of its major resistance zone between USD 1832.00 and USD 1835.00 an ounce, before easing but still finishing 0.40% higher at USD 1831.50 an ounce. In Asia, weaker sentiment has lifted the US dollar and yields slightly, forcing gold 0.25% lower to USD 1827.00 an ounce.

Gold’s story still looks one inversely correlated to US yields and the US dollar, and if the inflation story held water, then surely US yields would be higher. Nevertheless, gold’s price action remains constructive, and it has managed to hold onto its gains just below the major zone of longer-term resistance at USD 1832.00 to v1835.00 an ounce.

If gold can break and hold above USD 1835.00 an ounce on a daily closing basis, it will trigger an inverse head-and-shoulders pattern that would target a return to USD 2000.00 an ounce. Support is at USD 1800.00 and USD 1785.00 an ounce, although I suspect that a fall through USD 1810.00 will be enough to trigger nervous longs to exit.

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