Oil dips, gold slide continues

Oil continues to lose momentum ahead of OPEC+ meeting

Oil prices are pulling back from very elevated levels today. That doesn’t necessarily mean the party is over but the latest peak was once again made on declining momentum which is a sign of an overextended market. Obviously, it could become more overextended but each rally not backed up by momentum further confirms that a correction is likely.

And the proximity to the OPEC+ meeting next week is surely not a coincidence. The group could surprise once more and restrain production in order to support prices and I’m sure something like this would see momentum return, but I’d be surprised to see this given the current prices. They’d just be opening themselves up to a resurgent US shale sector.

The key to any agreement will be Saudi Arabia, whose additional one million barrel cut was only intended until the end of March. So any increase would be on top of that, unless the Saudis decide to act unilaterally again in order to support prices while allowing others to increase. They may not be so charitable this time around which could make for intense discussions. Perhaps no surprise then that we’re seeing rally momentum wane this week.

Gold pushing break of key support

Gold is in trouble once more and the near-term outlook isn’t looking great for the yellow metal. It’s making fresh lows again and pushing for a break of USD1,760, which could open up a much sharper decline. Rising yields and now a jump in the dollar are piling the pressure on gold and, barring a reversal in bond markets, it’s tough to envisage its fortunes improving.

The recovery trade and prospect of premature monetary tightening naturally isn’t supportive for gold, which typically does well in expansionary periods. The current support level has been key the last few months but the pressure isn’t easing up. A break of this could see it break into a new range around USD1,660-1,760, with next support around USD1,740.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.