Oil climbs, gold drops after FOMC

Oil prices rise on falling US inventories

Oil prices powered higher overnight as official US Crude Inventories fell by 3.50 million barrels, sending US crude stocks to their lowest level in three years. With Gulf of Mexico production returning slowly, and natural gas prices remaining sky high, the structural outlook for oil remains promising as OPEC+ struggles to meet even its current production quotas.

Brent crude rose by 1.60% to USD 75.85 overnight, climbing another 0.65% to USD 76.35 a barrel in Asian trading today. WTI rallied 1.55% to USD 71.95 before climbing another 0.60% higher to USD 72.35 a barrel in the Asia sessions.

Brent crude has support at USD 74.50 and USD 73.35 a barrel, and only a fall through USD 72.00, where its 50 and 100-day moving averages (DMAs) lie, changes the medium-term bullish outlook. Resistance is nearby at USD 76.70 and a rally through that level signals more gains targeting USD 78.00 a barrel.

WTI has support at USD 72.00 and USD 70.70 a barrel. Only a failure of the USD 69.50 region, the week’s lows and the 50 and 100-DMAs, signals a chance in the bullish outlook. Resistance is at USD 73.00 and v74.25 a barrel. In any case, even if we get sudden downward spikes in either contract due to short-term long capitulation, sell-offs should be short in duration with plenty of longer-term buyers waiting to pounce.

FOMC and Evergrande send gold lower

The temporary lull in Evergrande nerves removed haven support from gold overnight, as did a stronger post-FOMC US dollar. Gold fell by 0.35% to USD 1768.00, having failed above daily resistance at USD 1780.00 an ounce intra-session. In Asia gold has eased once again after a giant rally in Evergrande stocks, falling by 0.23% to USD 1764.00 an ounce.

Much of gold’s recent rally has been built of increasing fear gauges led by our friends in China. It is unlikely that the Evergrande saga is past “peak-fear,” and we are probably only one headline from another havens rally. As such, gold is not likely to capitulate lower this week and should hold any dips towards support at USD 1740.00 an ounce. However, with a higher US dollar clearly the FOMC taper pressure valve at the moment, unless Evergrande turns into a contagion mess, gold is unlikely to gain enough momentum to recapture USD 1800.00 an ounce.

As such, I expect any gold rally this week to run out of momentum in the USD 1780.00 to USD 1790.00 an ounce zone, with v1740.00 an ounce covering support below. That should be a wide enough range to keep short-term traders happy, but I am afraid the Evergrande may only be giving long-term bullish investors a temporary respite.

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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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