Oil trading in range, gold steady

Oil markets in range-trade mode to end the week

Oil prices finished modestly higher overnight after the US inflation data caused both contracts to spike lower initially. With markets seemingly comfortable with the Fed’s transitory narrative, oil quickly recovered. Brent crude finishing 0.47% higher at USD72.40 a barrel, and WTI closing 0.50% higher at USD70.10 a barrel.

News that Saudi Arabia has unwound all its voluntary production cuts are circulating in Asia today, and that appears to have temporarily pushed oil prices lower. As a result, Brent crude has fallen 0.25% to USD72.15, and WTI has eased 0.15% to USD69.93 a barrel. The reaction is modest, though, and if anything, the price action is bullish. It suggests that the physical market has absorbed extra Saudi production with ease and that demand globally is robust and climbing.

Barring any G-7 surprises and an unlikely US Dollar rally, oil should resume its climb next week. Only a retreat by Brent crude through USD70.00, or USD68.00 a barrel for WTI, endangers the rally. Otherwise, Brent crude should target USD75.00 and WTI USD73.00 a barrel in the week ahead.

Gold remains mid-range

Like oil, gold spiked lower on the initial US inflation releases overnight, briefly falling below $1880.00 an ounce. However, as it became clear that bond markets were unmoved by the data, gold quickly unwound those losses and finished the session 0.50% higher at USD1898.50 an ounce.

With US inflation fears consigned to the dustbin for another month, gold has modestly higher in Asia, reclaiming USD1900.00 an ounce, dead-centre of theUSD1880.00 to USD1920.00 trading range I expected to dominate the week. The FOMC meeting next week is now likely to be a non-event, and barring a sharp rise in the US dollar, gold looks set to test resistance at USD1920.00 an ounce early next week, as the asset price appreciation trade gains new momentum.

Only a fall through USD1860.00 an ounce delays more gains by gold now, and a daily close above USD1920.00 signals more gains to USD1960.00 an ounce.

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