Oil declines, gold edges upwards

Oil prices slide overnight

Oil prices slid overnight after another very volatile day of price action with very wide ranges. Brent crude finished 2.60% lower at USD 118.20 a barrel, and WTI fell 2.75% to USD 111.30 a barrel. The EU declining to sanction Russian oil has been given as the main reason, but I believe that a possible coordinated SPR release, and news that the Caspian CPC pipeline is resuming partial production are the more likely reasons for the fall.

Asia did its usual today, walked in, and started buying oil, sending prices modestly higher. Nobody wants to go into the weekend short oil. Brent crude has risen by 0.60% to USD 118.90, and WTI by 0.80% to USD 112.10 a barrel.

The US finally seems to be getting its act together around supplying Europe with more natural gas, and if they could climb down of their ESG thrones to fight the economic war, they could do much more still. That reality should eventually permeate even the most blinkered energy NIMBY. An Iranian nuclear agreement is still in play as well, and a potential deal could be a tool to nudge a reluctant Saudi Arabia and UAE. As such I believe Brent crude will continue to trade in a roughly USD 100.00 to USD 120.00 a barrel range for now unless the Ukraine war escalates.

The Gold bugs are back

Gold prices rose once again overnight, despite higher US yields. Gold finished 0.68% higher at USD 1958.00 an ounce. In Asia, modest trading has pushed it another 0.10% higher to USD 1959.60 an ounce. The reasoning behind the rally is as tenuous as the equity rallies. Suddenly, gold has become an inflation hedge once again, and a hedge against higher US yields, go figure that one out. I believe haven buying into the end of the week, and fast-money buying the break of USD 1950.00 are more likely.

As such, I remain sceptical about the gold rally. Its longer-term price action will turn constructive only if US yields cap out and US dollar weakness returns, or if President Putin starts using weapons he should not in Ukraine. Gold has shown more than once recently that prices climb slowly up the stairs, and then jump out of the 10th floor window, and I believe those risks remain.

Gold has nearby resistance at USD 1965.00 and USD 1975.00 an ounce, followed by USD 2000.00 where I expect option-related sellers to be lying in wait once again. Support lies nearby at USD 1950.00 and USD 1938.00 an ounce.

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

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