Oil dips on coal threat, gold rises

Oil weakens in Asia

Oil prices have eased in Asia after China’s threat to cap coal prices saw the mainland coal futures slump limit down once again today. That has unwound some of oil’s gains overnight after Saudi Arabia poured cold water on more OPEC+ production, oil or gas, and US official Crude Inventories, Gasoline and Distillates fell sharply, including crude stocks at the Cushing hub. Brent crude finished 0.85% higher at USD 85.85 overnight, testing USD 86.00 intraday. It has retreated by 0.70% to USD 85.25 a barrel in Asia. WTI jumped 1.33% to USD 83.50 overnight, testing USD 84.00 a barrel intraday. In Asia though, it has fallen 0.50% to USD 83.10 a barrel.

With coal and gas prices easing and with the relative strength index (RSI) technical indicators still in overbought territory, the odds of a sharp, but material fall in oil prices are rising. Brent crude could fall to USD 82.00 and WTI to USD 78.50 a barrel, and still comfortably remain in a strong bull market. A culling of speculative longs would be no bad thing for the overall uptrend. China’s ability to control energy and commodity prices as a price taker in international markets is limited. Thus, any China-induced sell-off is a buy-the-dip opportunity as a China buyers strike is never likely to happen.

Brent crude has resistance at USD 86.00 still, with support at USD 83.80 a barrel, followed by USD 82.00 a barrel. WTI has failed three times at USD 84.00 a barrel, forming strong initial resistance now. Support is at USD 80.80 followed by USD 79.50 a barrel.

Gold defies higher US yields

Gold defied higher long-dated US yields overnight by rising an impressive 0.70% to USD 1781.50 an ounce, climbing another 0.20% to USD 1785.50 in Asia. Gold probably owes its strength to a weaker US dollar and some Evergrande-derived haven buying in Asia today with the move overnight inevitably attracting the fast-money momentum gnomes out of their caves. Once again though, if the tides turn and the US dollar rises, I expect gold to rapidly unwind all of these gains.

That said, gold is slowly but surely forming what appears to be the second shoulder of an inverse head and shoulders pattern through a series of higher daily lows. In the bigger picture, a rise through USD 1835.00 an ounce, would trigger the multi-month inverse head-and-shoulders technical pattern and swing gold’s outlook back to positive, targeting a move back above USD 2000.00 an ounce. In the shorter term, a rising support line, today at USD 1768.50 an ounce, is continuing to support gold’s rally very nicely. The risks remain firmly to the downside unless US yields have a sustained move lower which sinks the US dollar, but I can no longer rule out entirely a move back above USD 1800.00 an ounce.

Gold has support at USD 1768.50, USD 1765.00, and USD 1760.00 an ounce, which is followed by USD 1745.00; failure signalling a retest of USD 1720.00 an ounce. Undeniably, gold is forming some decent short-term technical support.  Gold has resistance at USD 1790.00, followed by the 100 and 200-day moving averages (DMAs), today at USD 1793.00 and USD 1794.00 ahead of USD 1800.00 an ounce.

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