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Oil steady, gold rises on higher yields

Another sideways session for oil

Oil prices traded sideways once again overnight, with a slightly higher US dollar tempering gains. Both contracts edged slightly lower although in the bigger picture Brent crude and WTI remain at the top of their recent ranges. Brent crude eased 0.40% lower to USD 83.30 overnight, with WTI almost unchanged at USD 80.60 a barrel. Both contracts have given up another 20 cents a barrel in a quiet start to Asian trading.

The relative strength indicators (RSIs), short-term technical indicators remain in overbought territory. Speculative long positioning in the futures markets remains heavy leaving open still, the possibility of a sharp sell-off of 5-8 US dollars a barrel at some stage this week. As I have stated previously though, given the state of play in the physical market, a speculative long culling will be a dip to buy and is likely to be very short-lived in duration. A sharp rise in US API Crude Inventories tonight, or muted outlooks for 2022 from Q3 earnings outlooks, could provide that catalyst.

Brent crude has resistance at USD 85.00 and USD 87.00 a barrel, with support at USD 82.00 a barrel. WTI has resistance at USD 82.00, with support at USD 78.70 a barrel. Once again, watch the relative strength indexes (RSIs) this week. The higher into overbought territory they go, the deeper the short-term correction lower will be. One thing also to note, is that natural gas traced out a bearish outside reversal day last Thursday, with prices easing since. A sharp drop to cull speculators in that contract would likely have a similar effect on oil, such is the weight of speculative long positions.

Softer yields support gold

Gold prices edged higher overnight after it once again and held interim support at USD 1750.00 an ounce overnight. Gold finished the overnight session 0.33% higher at USD 1760.00 an ounce where it remains in early Asian trading. Lower long-dated US yields helped gold’s cause but interestingly, gold also rose despite the US dollar continuing to firm overnight. That suggests that gold is seeing an increase in risk aversion buyers at the moment ahead of the start of the US earnings season today.

That said, gold is showing a lack of momentum to make a strong directional move either way for now and although it is well supported into USD 1750.00 now, there is nothing to suggest that my anticipated weekly range of USD 1740.00 to USD 1780.00 an ounce is under threat. In the bigger picture, the threat of the Fed taper, leading to a continuing climb in US yields and the US dollar should continue to cap gold rallies and the bias is still for a move lower in the coming weeks.

Gold has interim support at USD 1750.00 and USD 1740.00 an ounce with more important support at USD 1720.00 an ounce, and if US yields rise, it could be tested. Resistance lies at USD 1780.00 followed by the USD 1800.00 region, containing the 100 and 200-day moving averages (DMAs) on each side of it, a formidable barrier.

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 [4]

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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