Oil rebounds, gold slips

Oil rallies in Asia

Oil prices slumped in overnight trading, Brent crude tumbling 6.85% to USD 98.70 a barrel, and WTI plummeting 7.0% to USD 95.10 a barrel. Oil markets continued to correct from the mayhem of last week, helped along by Iran nuclear deal hopes, fears over slower China growth, and persistent hopes of a Ukraine-Russia agreement to end the conflict.

There is a lot of hope, and not much sign of reality in that reasoning, and oil prices have rallied once again in Asia. Quite reasonably, Asian buyers could not resist Brent crude under USD 100 a barrel, with the region a massive net energy importer. Brent crude has risen 2.05% to USD 100.70 a barrel, with WTI rising 1.70% to USD 96.70 a barrel.

Failure of support on Brent crude at USD 96.00 a barrel could spur a deeper correction to the USD 90.00 region. Looking to the week ahead, I suspect that Brent will trade in wide USD 90.00 – 110.00 a barrel range as the street adjusts to the new cold war reality and the initial panic subsides.

Gold’s capitulation continues

The reduction in fear sentiment, eroding haven demand, and a market clearly long and wrong above USD 2000.00, sparked more capitulation for gold overnight after support at USD 1950.00 an ounce failed. As more long positions were cut, gold fell 1.70% to USD 1917.70 an ounce, where it remains today in Asia.

With the technical indicators now lying in exactly neutral territory, gold has the potential to move either way. However, given the recent price action, the risks remain skewed towards further downside pain for long-suffering gold investors. A Ukraine-Russia breakthrough is probably worth another USD 100 an ounce of gold’s price, while a hawkish FOMC this evening will weigh heavily if all other things remain the same.

Gold has support at USD 907.50, but its real support lies at USD 1880.00 an ounce. A sustained failure signalling a fall back to USD 1800.00. Gold will struggle to reclaim resistance at USD 1950.00 unless geopolitical developments darken noticeably.

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