Oil in choppy waters, gold range-bound

Oil partially reverses overnight losses

Oil prices continue to trade in a choppy but ultimately range-trading manner. News that China was releasing some strategic oil reserves into domestic markets put the bears in the ascendancy. However, I suspect a lower than expected fall in official Crude Inventories had more to do with the falls. Brent crude fell by 1.80% to USD 71.35, and WTI slumped by 2.0% to $67.95 a barrel.

The Biden/Xi phone call has had the same effect on oil markets as it has other asset classes, with any hope that US/China relations, no matter how small, are construed as positive for global trade and basically almost every asset. Oil markets are no different with the China reserve story quickly forgotten as Brent crude and WTI rise 0.75% in Asia to USD 71.85 and USD 68.50 a barrel.

The Biden/Xi phone call should be a powerful enough incentive to keep the music playing into New York, and I expect oil to continue retracing its overnight losses and climb to the top of its recent range.

Brent crude has resistance at USD 73.20 and USD 73.70 a barrel, with support at USD 71.00 and USD 70.50 a barrel. WTI has resistance at USD 68.85 and USD 70.50 a barrel, with support at USD 67.50 and USD 67.00 a barrel. It would be a huge surprise if oil finished the week outside of those ranges tonight.

Gold remains punch drunk

The fall in US yields and easing of the US dollar was enough to lift gold slightly higher overnight, rising 0.30% to USD 1794.50 an ounce. In Asia, it too has received a modest US/China tailwind as it climbs another 0.20% to USD 1798.00 an ounce.

In the bigger picture, gold still looks punch drunk, and its price action is most unimpressive. The balance of risks continues to be skewed to the downside, with gold’s upward momentum vanishing this week. Even when US yields and the US dollar fall, gold can still not create a meaningful rally, suggesting that there are many stale speculative long positions out there.

Gold has contracted into a narrow USD 1780.00 to USD 1800.00 an ounce range, and a break higher unlikely to seriously test the 200-DMA at USD 1809.40, or the 100-DMA at USD 1815.90 an ounce, let alone the much more formidable USD 1835.00 an ounce region. Failure of nearby support at USD 1780.00 an ounce could see stop-loss selling emerge, pushing gold quickly lower to USD 1750.00 an ounce.

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