Oil steady, gold rallies

Oil markets are remarkably calm in Asia

Oil prices had a volatile session overnight, trading in a large range. Ultimately, though, both Brent crude and WTI finished almost unchanged, up 0.30% at USD 78.35 and USD 75.05 a barrel. In Asia, the absence of China has had an immediate impact on volumes with both contracts almost unchanged at USD 79.50 and USD 75.00 a barrel.

If China’s state-owned energy companies have indeed been instructed to “do whatever it takes” to secure winter energy supplies, it is unlikely that oil prices can fall very far, even if most China buying occurs in the natural gas and coal markets. Similarly, the Reuter’s reporting around Monday’s OPEC+ ministerial meeting leaves me with the impression that the grouping is only prepared to, or can only apply a band-aid to the energy supply crunch.

Therefore, although speculative oil futures markets could see some sharp intraday moves lower, as occurred yesterday on OPEC+ hopes, they are likely to rebound just as quickly, inevitably meeting a wall of buyers on the dips. The scramble for pre-winter energy supplies from the northern hemisphere heavyweights is not something that can be magically alleviated by physical markets in the short term.

Brent crude’s overnight low at USD 76.70 is initial support, but only a daily close under USD 76.00 temporarily changes the bullish outlook. It has resistance just above USD 79.00 followed by USD 81.00 a barrel. WTI has support at USD 73.00 a barrel, which held overnight, with resistance at USD 76.00 and USD 76.60 a barrel.

The potential for disappointment from the OPEC+ meeting on Monday is high. A one-month increase of 800,000 bpd in November just won’t cut it for markets scrambling for energy supplies. Nor, it appears, is OPEC+ overly concerned right now either, with a chance to replenish state coffers seemingly irresistible right now. Don’t expect much hope from the world’s swing producer, Saudi Arabia, either. A unilateral weekend announcement opening the pumps, for example, would undermine its leadership and the cohesion of OPEC+.

Gold optimists return

It seems that you just can’t keep the gold bugs down for long, even if the light at the end of the tunnel is the train coming the other way. Gold staged an impressive rally overnight, rising by 1.76% to USD 1757.00 an ounce, a 30 dollar move. There was no clear singular reason for gold’s powerful rally; US yields and the US dollar edged only slightly lower, and nothing materially changed in the world, with US jobless claims only slightly higher than expected. In Asia, gold has hardly moved, easing slightly to USD 1753.00 an ounce today.

I would certainly agree that the uncertainty sweeping the world has prompted risk-hedging buying and rightly so. Still, despite seeing those flows all week, gold had still sunk until yesterday when it unwound the whole week’s losses. Some loading up ahead of the one-week China holiday may have seen greater than usual haven flows, but the whole move smacks of hope and false optimism and speculative zeal over reality.

This looks like a sucker’s rally to me as none of the fundamentally bearish factors for gold, the Fed taper, higher US yields and a stronger US dollar, has changed. Join in the fun at your peril. Gold has resistance at USD 1763.00, the overnight high, followed by USD 1780.00 and USD 1800.00 an ounce. Support is distant at the USD 1622.00 double bottom followed by USD 1720.00, USD 1700.00 and long-term support in the USD 1680.00 an ounce region.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was 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 and Channel News Asia as well as in leading print publications such as 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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