Gold and silver slip as US dollar rebounds

Oil’s price action underwhelms

Having failed to push on with upside breakouts early last week, a stronger US dollar on Friday saw that momentum fade yet again, with both Brent crude and WTI finishing lower. Brent crude fell 1.10% to USD44.65 a barrel. WTI fell 1.0% to USD41.50 a barrel.

Much has been made about growth worries etc. capping oil prices, but oil’s volatility of late has been subdued. The past month’s price action suggests that oil is perhaps closer to equilibrium than the market expected, with prices on both contracts effectively in a three-dollar range for the past six weeks.

If the US dollar rally continues to gather steam, both contracts look set to edge lower to the bottom end of their medium-term ranges. Brent crude has resistance at USD46.20 a barrel, last week’s high. It has support at USD44.20 and then USD42.50 a barrel. WTI’s 200-day moving average now sits at USD42.55 a barrel, with critical support at USD38.50 a barrel.

Trade is directionless in Asia today with a holiday-thinned market. Oil’s lack of recent volatility, may be a blessing in disguise, potentially shielding it from the worst of any fall-out from a strong US dollar rally this week. Overall, oil’s long summer of love holiday looks set to continue for some time yet, with eyes focused on more pressing threats elsewhere.

Gold faces further potential losses

Let us be clear, the longer-term case for higher precious metals prices, as outlined ad nauseum in previous commentaries, remains unequivocally intact. As I have also stated though, gold is prone to gut-wrenching corrections along the way. The technical picture suggests that this may be one of those weeks.

On Friday, a general move higher in the US dollar provoked a 1.40% fall by gold prices. Gold fell from a record high of USD2075.00 to USD2015.00 an ounce during the session, before closing at USD2035.00 an ounce. Ominously, gold traced out an impressive outside reversal technical formation, which implies that deeper losses are ahead. Having been the FOMO-friend to many these past two weeks, gold has the potential to be the FOMO-fiend this week, if dollar strength persists.

Resistance is far distant at Friday’s highs around USD2,075.00 an ounce. Support lies at Friday’s lows at USD2015.00 an ounce with USD2000.00 an ounce, a crucial psychological pivot level. A loss of the latter could see gold fall to USD$1960.00 an ounce, and possibly as far as USD1940.00 an ounce, according to the technical picture.

One glimmer of hope is that silver only retreated 2.0% to USD28.3000 an ounce on Friday, implying that demand remains firm. Both metals, though, are lower in subdued Asian trade. Gold has fallen six dollars to USD2028.00 an ounce. Silver has dropped 30 cents to USD27.9900 an ounce. Critical support for silver rests at USD26.0000 an ounce. A failure will all but confirm the potentially emotional bearish thesis for both precious metals this week.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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