Oil rally continues, gold edges higher

Oil markets rally, now seriously overbought

Oil’s upward momentum remained undiminished on global recovery hopes. Investors sent Brent crude 0.80% through USD61.20 a barrel. WTI rose 0.55% to USD58.40 a barrel. Asia markets have been quiet and profit-taking has pushed bot contracts 25 cents lower in a non-descript session.

Brent crude’s next technical target is now the USD66.00 a barrel region with no meaningful support until USD57.50 a barrel. WTI targets the USD60.00 a barrel mark, with any significant support now distant at USD54.00 a barrel.

That Brent crude and WTI have now run so far ahead of their respective support region in such a short amount of time is a warning sign. The Relative Strength Indexes (RSI’s) on both have now climbed into very overbought territory. When it comes, the correction could well be quite brutal unless oil now contents itself to consolidate at these price levels for the next few days. Investors that are long up here should prepare to be nimble.

Lower US dollar drags gold higher

Gold rose another 0.44% to USD1839.00 an ounce overnight, advancing another 0.25% to USD1843.75 an ounce in a quiet Asian session. Gold can thank a weaker US dollar once again for its rally, not a change in the yellow metal’s structural outlook.

Having recaptured its previous support at USD1830.00 an ounce, gold needs to hold this level, ideally mounting a challenge on its 200-day moving average at USD1853.80 an ounce. Beleaguered long positions can start to breathe easier once this occurs.

Gold should find Asian investor buyers on any dips today, loading up on risk hedging ahead of the Lunar New Year break. Starting tomorrow, China is away for a week, along with most of Asia over the next few days. In the bigger picture, gold’s fate remains in the hands of events elsewhere in the US dollar and US bond market.

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