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.

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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