Oil climbs, gold holds ground

Oil rallies but remains range-bound

With no news from the OPEC+ standoff, markets took their cues elsewhere. In this case, the IEA suggested that oil production needed to rise in tandem with the world recovery. US API crude inventories fell again by 4 million barrels. The US inflation data suggested the economy was firing on all cylinders and will need more oil in the months ahead.

All of that combined to send Brent crude higher by 1.60% to USD 76.40 a barrel, and WTI higher by 1.40% to USD 75.10 a barrel. Oil has moved sideways in Asia, but markets remain confined in a broad but choppy range in the bigger picture. Oil is unlikely to break out of its July highs until some clarity appears over resolving the Saudi Arabia/UAE production standoff. Markets likely have residual fears that the longer the situation remains unresolved, the more likely OPEC+ discipline is expected to fade or fracture, opening up the taps to a production free-for-all.

In the meantime, Brent crude has resistance at USD 78.00 a barrel, with pullbacks limited to USD 74.00 a barrel. WTI has resistance at USD 77.00 a barrel, with any pullbacks likely to be limited to USD 73.00 a barrel.

Gold might be finding its inflation mojo

Gold held up surprisingly well overnight after the US CPI data propelled the US dollar higher and lifted long-dated US bond yields slightly. That should give some comfort to bullish investors that gold may finally be regaining its inflation hedging mojo after being an inverse US dollar play for the past few weeks.

Gold finished almost unchanged at USD 1808.00 an ounce overnight, a solid performance given the broader US dollar strength. It has advanced in Asia, rising to USD 1813.00 an ounce, perhaps benefitting from some flows out of regional equities and into safety. Gold remains confined to a narrow USD 1800.00 to USD 1820.00 range for now, but the overnight performance suggests the downside looks solid now, and it should find support on dips to USD 1790.00 an ounce.

As with everything else, the next directional move lies with Jerome Powell in Congress tonight. If he remains transitional in his inflation outlook and unconcerned about tapering, US bond yields and the US dollar will fall, which should lift gold towards resistance. A hawkish Powell is likely to postpone the rally, but gold looks to be well supported on dips, as previously stated.

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