Oil extends losses, gold unsteady

Oil slips for a third day

Oil prices are pulling back for a third day, despite market sentiment improving more broadly. Crude prices came close to their summer peaks before profit-taking kicked in and with operations coming back online in the Gulf of Mexico, it seems the market has entered into a corrective period.

That said, WTI is already seeing some support around USD 70, where it finally broke above last week after multiple attempts. This was the first big test below and so far it’s holding up quite well. A move below here could see attention move back to USD 67-68 where it found support early in September.

We may also be seeing some knock-on effects from the Evergrande story weighing on crude, with China being the world’s largest importer and the property firm being a growth risk. It will be interesting to see if that continues in the coming days, should the situation continue to deteriorate.

Gold not acting like much of a safe haven

Gold has been an interesting one to watch in recent days. On the one hand, it’s a traditional safe haven. On the other, it sold off heavily on Thursday and even now, has only recouped half of those losses. Not perfect safe haven behaviour if investors are as concerned about Evergrande as has been suggested.

The yellow metal remains in an uncomfortable spot and, ultimately, it’s the Fed that holds the key. A dovish Fed sees gold welcomed back with open arms. The opposite could see it head back towards USD 1,750 and perhaps even below. Something in between could see consolidation continue around USD 1,800 once more.

The likelihood is that Fed Chair Jerome Powell is going to explain that the plan is still to taper this year but it’s going to be accompanied by so many dovish caveats that investors will remain on board. The central bank buys itself a couple more months while leaving the door open to changing course if the situation warrants it. A sensible approach, all things considered.

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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.