Oil higher, gold consolidates

Hurricane fears pushed oil higher

Fears that a storm in the Gulf of Mexico might evolve into a hurricane lifted oil princes on Friday. Brent crude shot up by 2.55% to USD66.65 a barrel, while WTI by 3.10% to USD63.85 a barrel. Oil prices have held those gains in Asia, with both contracts advancing by around 15 cents a barrel.

Regarding the hurricane concerns, I couldn’t find any signs of hurricane activity, so it is interesting that oil prices have held onto their gains, especially with the noise coming from Iran about an agreement with the US remaining positive.

It could well be after a torrid week, US markets were looking for an excuse to buy the dip on Friday, and a hurricane is as good a reason as any, tenuous as it was. Fears over returning Iranian production to international markets appear to be dimming as well, perhaps being fully priced in as prices dipped in the back end of last week. If the global recovery narrative across the US, Europe and China remains intact, oil prices should have a natural floor going forward.

Brent crude is now near the middle of a wider USD64.60 to USD70.00 barrel range after last week’s price actions. The USD64.60 level is now a triple bottom on the charts, and I believe if that holds, Brent crude should gradually edge higher this week. WTI fell out of its two-month bullish channel last week, the base of which, is just above USD64.45 a barrel. That is followed by resistance at USD67.00 a barrel. Last week’s lows around USD61.60 a barrel are initial support and this needs to hold early this week, else a deeper correction below USD60.00 could occur.

Gold consolidates at the top of its range

Gold shrugged off US strength on Friday, and although it traded in a narrow range, it enjoyed a very positive finish to the week. Gold rose 0.20% to USD1881.00 an ounce, climbing another 0.20% to USD1885.00 an ounce in Asia today. With the meltdown in the cryptocurrency markets last week, and the weekend price action, it looks like gold is receiving haven flows at their expense. The stubborn refusal of US 10-year yields to meaningfully test the top of their range, and the ensuing dollar softness is also boosting gold’s cause.

With gold just below the highs of last week, it looks set to test nearby resistance at USD1890.00, sooner rather than later. That should see gold rise to USD1900.00 an ounce, from where I expect option and model-based buyers to drive prices quickly to its next technical level at USD1920.00 an ounce. Gold has support at USD1871.00 an ounce, but its breakout at USD1845.00, and its 200-DMA, remain the crucial pivot point. Only a daily close below USD1845.00 suggests the bullish case has run out of steam for now.

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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