Oil consolidates, gold woes continue

Oil markets consolidate gains

Oil markets fell overnight as investors locked in recent profits and started turning their attention to next month’s OPEC+ technical meeting, where expectations are that the grouping will ease supply curbs. Brent crude fell by 2.30% to USD67.95 a barrel, and WTI fell by 2.45% toUSD64.65 a barrel.

The price action looks consolidative in the bigger picture, and oil markets have duly rallied in Asia as equity markets trimmed early losses. Brent crude has risen 1.25% to USD68.80 a barrel, and WTI has risen 1.30% to USD65.50 a barrel.

Brent crude rose briefly through USD70.00 a barrel to USD71.30 a barrel yesterday, tracing out a double top with the January high. That is initial resistance followed by the USD76.00 a barrel region. Initial support is at USD67.60 a barrel. WTI spiked to USD67.90 a barrel overnight, and becomes initial resistance with support at USD63.70 a barrel.

The double top traced out by Brent crude could signal that oil will spend the subsequent few sessions consolidating at these price levels, and a meaningful three- or four-dollar correction cannot be ruled out. However, with a structural undersupply in the physical market now, any dips in oil prices are likely to attract physical buyers’ attention and be short in duration.

Gold takes a standing eight count

Gold prices remain on the ropes, with the yellow metal falling 1.20% to USD1683.50 an ounce overnight, breaking yet another significant support at USD1689.00 an ounce. The squeeze in US yields, and the ensuing US dollar strength, continue to undermine any hopes of recovery.

Short-covering has lifted gold modestly back to USD1689.00 an ounce this morning after equities staged a recovery from earlier losses. The technical picture remains grim, however.

One hope of respite lies in gold’s relative strength index (RSI), which has moved into oversold territory. Because of this, I suspect that gold will limit losses to USD1680.00 an ounce over the subsequent few sessions as markets negotiate this week’s US bond auctions. That said, I believe we are entering into a range-trading scenario, and it is hard to see gold managing to rise through USD1720.00 an ounce this week.

Strong demand at the US bond auctions this week will support gold prices. However, the most likely scenario remains some side-ways consolidation followed by another significant fall targeting the USD1600.00 an ounce area.

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