Oil and gold retreat

Oil falls on OPEC+ deal

OPEC+ reached an agreement over the weekend to extend the groupings production deal to the end of 2022 while simultaneously lifting daily production and raising baseline quotas for the group’s heavyweights. Oil prices had edged lower on Friday on virus-driven growth concerns, despite US data, OPEC+ break-up fears. The announcement to increase supply has pushed prices down this morning for most of the morning session.

On Friday, Brent crude fell 0.20% to USD 73.10 a barrel while WTI fell 0.10% to USD 71.45 a barrel. After both fell over 0.50% today after the weekend OPEC+ announcement, both have steadied back and are almost unchanged at USD 73.05 and USD 71.25 a barrel, respectively.

Although the intention to increase production is a short-term negative for oil prices, particularly as it coincides with growth fears sweeping markets this week, in the longer run, the ability of OPEC+ once again to overcome their difference is a positive for prices. If demand falls short of expectations, OPEC+ more than likely has the discipline to modify production targets to support prices as well now, as necessary.

I do not rule out more weakness in the short term, but overall, I believe the worst of oil’s price pullback is now over. On Brent crude, failure of support at USD 72.00 could see a spike to USD 70.00 a barrel. Similarly, a loss of USD 70.00 a barrel by WTI could see it briefly spike to USD 68.00 a barrel.

Gold wobbles

Gold prices fell on Friday as US Retail Sales failed to move US bond yields higher but did strengthen the US dollar. The US dollar appears to be catching a safe-haven bid as well, as virus/growth fears rise, which is also capping gold’s gains.

Gold retreated 0.95% to USD 1812.50 an ounce on Friday and came very close to staging an outside reversal day, which would have been a powerful negative technical indicator. The loss of upside momentum has shifted the risks for gold to the downside. For now, though, and despite the noisy price action, gold remains hemmed in by its 100 and 200 DMAs at USD 1792.00 and USD 1826.00 an ounce, respectively.

A daily close below USD 1790.00 an ounce would signal a deeper correction targeting USD 1750.00. Some short-covering has seen gold rise slightly to USD 1813.00 an ounce in Asia, with investors’ minds regionally clearly focused more on equity markets. However, this is a week for patience, and with momentum shifting on sentiment, investors should respect the 100-and 200-DMAs and avoid getting caught out by whipsaw price action.

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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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