Oil dips on soft PMIs, gold steady

Oil has a delta-dip mini

Oil prices plunged overnight as softer than expected PMI data from China and the United States sparked fears of a slowing recovery, and thus, lower oil consumption. Rising delta-variant cases in both countries added to the darkening outlook. To be fair, and as I noted yesterday, oil did look ripe for a correction lower, the recovery rally having lost momentum at the end of last week.

Brent crude fell by 2.60% to USD 73.20 a barrel, and WTI tumbled 2.85% to USD 71.60 a barrel. Brent crude and WTI are 0.60% lower at USD 72.80 and USD 71.15 a barrel. Prices on both have continued falling in Asia, although the overnight lows in New York have not been tested.

The falls overnight looks corrective, and the scope is nothing compared to the “delta-dip” of a couple of weeks ago, which was an outright capitulation trade. Oil’s fundamentals remain constructive, and only a widespread Covid-19 outbreak in China, leading to mass lockdowns, will change that.

The overnight lows on Brent crude and WTI at USD 72.35 and USD 70.60 a barrel provide initial support, followed by USD 72.00 and USD 70.00 a barrel, respectively. Any spike below the latter levels will be a buying opportunity, and I expect any aggressive sell-off due to stop-losses to be short-lived.

Gold is unchanged

Gold markets were content to watch from the sidelines overnight, with gold finishing almost unchanged at USD 1814.00 an ounce, edging slightly lower today in Asia to USD 1811.50 an ounce.

The fall by gold has moved it back into its broader July range of USD 1790.00 to USD 1820.00 an ounce. The failure of gold to hold gains in the face of even modest US dollar strength and ever-falling US yields is disappointing, but as long as USD 1790.00 an ounce holds on a closing basis, gold’s medium-term perspective still looks constructive. Interim support and resistance are found at its 100 and 200-DMAs at USD 1802.85 and USD 1820.50 an ounce.

If support at USD 1790.00 fails, gold could return to USD 1750.00 an ounce, potentially quite quickly. The US Non-Farm Payrolls should answer some questions regarding the US dollar’s direction on Friday. In the meantime, patience and playing the range are probably the best strategy.

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