Oil rallies but gold tumbles

Oil’s rally continues

Oil’s rally continued overnight, albeit at a gentler pace than the previous session. Oil markets continue to dine out on the unilateral production cut by Saudi Arabia, with the Democrat’s win in Georgia adding a stimulus side dish, with the extra benefit of the US dollar being unmoved as US yields edged higher.

Brent crude rose 1.20% to USD54.15 a barrel, and WTI rose by 1.40% to USD50.50 a barrel, consolidating its break above the USD50.00 mark. Oil futures markets have been notable for the increasing backwardation in the calendar spreads since the Saudi announcement, a bullish factor that will support oil prices on dips from now on. The rally has continued in Asia, with Brent crude rising 0.90% to USD54.65 a barrel, and WTI rising 0.80% to USD51.00 a barrel.

With supplies now being squeezed, both contracts have every chance of maintaining their impressive two-month price gains, as the world recovery continues to accelerate. Brent crude’s next target is USD60.00 a barrel, with only a retreat through USD50.50 a barrel calling the rally into question. WTI, having broken through the USD50.00 a barrel barrier, should now target USD55.00 in the weeks ahead. Critical support is distant at USD47.00 a barrel. However, I suspect that if Brent crude reaches USD60.00 a barrel, Saudi Arabia will call time out on further cuts, not wishing to allow US shale a window of opportunity to get back into the game at scale.

Gold prices torpedoed by US yields

Gold tumbled overnight, falling as low as USD1900.00 an ounce on its way to a 1.60% loss for the session, finally closing at 1919.00 an ounce. Gold found itself in a perfect storm, most especially the tightening of US 10-year yields, to which it is very sensitive. The unwinding of Georgia election-related risk hedges added to its woes, as well as the inevitable culling of speculative longs late to the party.

As stated previously, I expected gold to trade in a noisy USD1910.00 to USD1960.00 an ounce range ahead of the Georgia runoff, and I expect that range to broadly hold now into Friday’s Non-Farm Payrolls. The direction of US 10-year yields will be the critical component, with a continuing move higher, in yield term, likely to cause more soul searching for gold.

Gold has clear technical support at USD1900.00 an ounce, and USD1895.00 an ounce, the 100-day moving average. The latter remains critical support, and failure on the close signals a deeper correction lower. A series of highs between USD1965.00 and USD1975.00 an ounce denotes initial resistance, followed by USD2000.00 an ounce, where I expect heavy option-related selling to cap gains initially.

Bitcoin feasts on anarchy

The actions of the Washington DC protestors overnight were meat and three vegetables to Bitcoin aficionados, and for once I cannot argue. Bitcoin dined out on the Washington DC chaos rising 8.26% to USD36.850.00 overnight, a new record high. That record has quickly broken today, with BTC/USD leaping another 1.92% to USD37,520.00 this morning.

Although I continue to shout hopelessly from my soapbox that Bitcoin is a tradable asset, and not an investible one, I will not argue with momentum and doom theory FOMO. With impeachment talk running around Washington DC and a seeming avalanche of immediate resignations from his staff, the president’s actions may yet have consequences. A Democrat debt orgy and ensuing dollar debasement narrative is helping things along nicely. That is as fertile a ground for Bitcoin as any, and new all-time highs from numbers plucked out of the sky seem inevitable. Just please don’t put your pension money in it.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is 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, Channel News Asia as well as in leading print publications including 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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