Oil extends rally, gold edges lower

Oil markets continue rallying

Oil markets seem unstoppable right now, with both Brent and WTI rising once again overnight. Brent crude rose 1.55% to USD74.25 a barrel, and WTI leapt 1.80% to USD72.45 a barrel. Both contracts continue to rise in Asia, adding 0.50% to USD74.65 and USD72.75 a barrel, respectively.

The continuing large backwardation in the prompt futures curve remains a strong indicator of physical demand and supports oil on any dips. Oil also gained another tailwind from the US API Crude Inventories overnight, which fell by a much larger than expected 8.50 million barrels.

However, although the world is seemingly universally bullish on oil, both contracts are now vulnerable to a potentially sharp downward correction to cull excessive speculative longs in the shorter term. As a result, the Relative Strength Indexes (RSI’s) on both contracts have risen firmly into overbought territory. The daily RSI is usually a good indicator of intra-trend corrections when it reaches extreme levels.

Brent crude has USD75.50 and USD78.00 in its sights, but a fall through USD72.80 could signal a drop extending as far as USD71.00 a barrel. WTI has resistance at USD75.50, and failure of USD71.00 could see USD70.00 a barrel retested. Any abrupt sell-off is likely to be violent but short in duration.

Gold edges lower once again

Nervous speculative longs continued to head for the exit door overnight, although gold itself only fell modestly. Gold ended the session 0.40% lower at USD1859.00 an ounce. In Asia, it has probed the downside but quickly returned to an unchanged level.

Gold’s RSI has staged a remarkable retreat from very overbought levels to neutral in a short amount of time. However, gold still looks vulnerable to further losses, especially if the US dollar rallies after the FOMC this evening. A Musk tweet boosting cryptos could also dispense the coup de grace to gold, such is the world we live in.

Critical support remains its 200-day moving average (DMA) at USD1840.00 an ounce. A daily close below this region targets deeper losses that could extend to its 100-DMA at USD1798.00 an ounce. At those levels, though, gold becomes a seriously appealing medium-term play once again. Patience and nerves of steel are, as ever, a virtue in the world of precious metal trading.

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