Oil prices signal further gains
Oil prices were remarkably firm overnight and are signalling that a test of upside resistance levels could be ahead. Both Brent crude and WTI recorded substantial gains despite higher US yields, a firmer greenback, higher than expected US API Crude Inventories and OPEC+ production increases starting next week. OPEC+ cancelled a ministerial meeting this week, deeming it not necessary ahead of previously decided production increases, in a show of confidence in their forecasts.
Brent crude rose by 1.30% to USD66.60 a barrel, with WTI climbing 1.80% to USD63.10 a barrel. Both contracts have seen some modest profit-taking in Asia, Brent crude easing to USD66.35 and WTI to USD62.85 a barrel but have clung onto almost all of their overnight gains.
A benign FOMC and the expectations of impressive US data to come this week and its flow-on impact of US consumption appear to be trumping concerns over Covid-19 in India. US API Crude Inventories rose to 4.5 million barrels overnight, far higher than expected. The fact that the market ignored this entirely suggests that oil prices have seen their medium-term lows for now. A repeat with official US Crude Inventories this evening would almost certainly confirm this premise.
Brent crude and WTI continue to trade in broad ranges between USD64.00 to USD68.00 and USD60.00 and USD64.00 a barrel, respectively. Interim resistance lies at USD66.30 and USD63.30 a barrel and barring an FOMC surprise leading to a massive spike in the US dollar, it would appear that the higher is the path of least resistance for oil.
Higher US yields erode gold
US yields moved higher in the long end of the curve overnight, which further eroded gold’s recent gains on a modest scale. Gold fell 0.25% overnight to USD1776.50 an ounce, falling another 0.25% to USD1772.00 an ounce in Asia.
Gold’s rally has clearly lost momentum after tracing out a double top just ahead of USD1800.00 an ounce last week, with the 100-day moving average just above at USD1801.50 an ounce. Bitcoin’s comeback and more exciting price action in the platinum group metals may have also sapped the interest of bullish investors, especially after the technical failure near USD1800.00 an ounce.
Gold needs a suitably dovish FOMC, and a retracement lower by US yields and the US dollar to regain its bullish momentum. Otherwise, the odds are rising that gold will retest support at the 50.0% Fibonacci pivot level at USD1760.00 an ounce. Failure could see another heart-breaking washout to USD1720.00 an ounce. Gold still has formidable resistance to overcome each side of USD1800.00 an ounce.