Oil falls on Iran report, gold rally fizzles

Oil suffers Iran’s nerves

Oil markets powered higher yesterday, with Brent crude touching resistance at USD70.00 a barrel. The rally suffered an abrupt U-turn after BBC Persia tweeted that progress had occurred on a US-Iran deal, with an announcement to happen today. The UN Russians denied the story, but the damage was done; Brent crude finishing 1.50% lower at USD68.50 a barrel, and WTI closing 1.60% lower at USD65.25 a barrel.

The negative tone has continued in Asia, with Brent crude and WTI falling another 0.90% to USD67.65 and USD64.70 a barrel, respectively. With the threat of Iranian production returning to international markets having been ignored in recent times, the price action suggests that the short-term speculative market has got itself excessively long and wrong near the top of the range. The price action in Asia indicates that markets remain nervously long and wrong, and that more downside pain is possible.

The failure again at USD70.00 a barrel means this remains the critical barrier to further gains for Brent crude, although it should move quickly to USD72.00 once broken. The overnight low at USD67.30 is initial support, followed by USD66.50 a barrel. WTI has resistance at USD67.00 a barrel and support at the overnight low of USD64.15, followed by the bottom of the channel at USD63.80 a barrel.

The wide ranges overnight, and the speed of the retreat, suggests that short-term markets are vulnerable to further losses. If the BBC story is correct, oil prices could fall materially, and rapidly as speculative longs mass-capitulate in a disorderly manner. The underlying bullish case remains for oil, and for those brave enough, a disorderly retreat lower may be a fertile ground for bargain hunters with deep pockets.

Gold’s rally shows signs of fatigue

Gold finished the overnight session slightly higher, rising just 0.15% to USD1869.00 an ounce as US yields crept higher. Having probed the downside in Asia, it has moved back to unchanged. Notably, though, gold struggled to rally at all, even as the US dollar retreated materially overnight. That suggests that upward momentum is waning in the shorter term.

Having rallied nearly USD50 an ounce over the previous two sessions alone, gold’s Relative Strength Index (RSI) has now moved into overbought territory. That suggests that gold will either trade sideways over the subsequent few sessions or retreat, easing the pressure on the technical indicator.

Having rallied a long way in a short time, a downward correction is more likely. Gold has resistance at USD1875.00 an ounce, which opens a test of USD1900.00 an ounce. Support is nearby at USD1863.00 an ounce, after which the chart picture shows a significant fall is possible to USD1845.00 an ounce. That is a series of previous daily highs and the 200-DMA.

Gold’s fate is likely to be decided by the behaviour of the US long-dated bond yields after the FOMC minutes tonight.

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