Oil Traders Are Whipsawed As Gold Gets De-rated

Talk of OPEC cuts is a false dawn with traders whipsawed, as higher global rates leave gold on the back foot.

CRUDE

Two weeks away was well timed as oil prices rallied over 10% from their early June lows only for both crude contracts to give back the majority of those gains in just as short time. It is especially concerning against a backdrop of massive drawdowns in U.S. Crude Inventories last week. Looking from the outside in the rally in oil looked more about systematical traders being whipsawed out of short term positioning rather than a fundamental change in the oil market itself.

Talk of deeper OPEC cuts is we feel, premature and indeed OPEC’s Secretary General appeared to quash this over the weekend, commenting that they would not be considered at the July 24th meeting. It could lead to crude prices coming under some pressure in Asia and Europe to start the trading week. In all honesty, it would be unrealistic for OPEC to get themselves and the Non-OPEC’s “ducks in a row” in the timeframe available even had they wished to consider it.

As the new reality that both Brent and WTI’s medium term ranges are more likely to be $40 to $50 a barrel, OPEC can at least take some solace that both contracts are trading approximately mid-range.

Brent spot opened at $47.00 in Asia after falling two percent on Friday. Resistance lies at $47.80 with key short-term support at $46.00.

WTI spot opened at $44.50 in early Asia after a similar Friday fall. Resistance lies at 45.20 with $43.50 possibly seeing more stop-loss selling as the whipsaw comes out to slice traders positioning again.

GOLD

Friday’s higher Non-Farm Payrolls print ripped gold out of its consolidation range of last week, with the yellow metal falling at 1.70% at one stage before climbing off the floor to close at 1212.50, still some one percent down on the day. With the hindsight of two weeks away, gold itself appears though to have been treading water anyway with the bearish chart patterns most definitely still to the fore.

More troubling going forward for gold bulls will be the moves of last week in U.S. and German rates. With yields on both marching higher as talk of ECB tapering and good U.S. further undermining gold’s appeal as an asset class.

This morning gold opened in Asia at 1212.00.

Daily support lies at the 50% retracement just below at 1208.85 followed by the psychological 1200.00 and then 1195.00.

Resistance is well defined at 1230.00, just ahead of the 200-day moving average at 1232.50.

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