Despite the carnage seen in the equity, bond and commodity space, oil prices held firm overnight. Physical supply constraints, and the fact that much of the inflation recently seen is driven by oil’s rise, meant that oil prices remained resolute. Brent crude fell only 0.33% to USD67.00 a barrel. Meanwhile, WTI remained unchanged on the day at USD63.45 a barrel.
With the asset market sell-off continuing in Asia and the US dollar strengthening, oil prices have eased modestly in Asian trading. Brent crude and WTI have fallen by 1.0% to USD66.30 and USD62.80 a barrel, respectively. The scope of the losses is modest, though, and with prompt and longer-dated futures calendar spreads in backwardation, physical markets remain hungry for supplies. The noise seen elsewhere will not materially change that outlook, and oil should be keenly sought on dips.
Brent crude has initial resistance at overnight highs around USD67.65 a barrel. Support appears at USD65.00 a barrel with only a move lower through USD62.50 a barrel, implying the oil rally has run its course. WTI has resistance at USD63.80 a barrel with support around USD61.00 a barrel. The technical picture for both contracts remains bullish, with overbought indicators easing back towards neutral territory.
Gold faces the end of days
Gold’s recovery from the sell-off last week was asthmatic, as it struggled to hold above USD1800.00 an ounce. At the first signs of trouble in the US bond market, as yields pushed higher, gold has retreated. The soft price action saw gold decline by 1.90% to USD1770.00 an ounce overnight, and it has retreated another 0.15% to USD1768.00 an ounce today.
Gold now faces its moment of truth, being only a few dollars above critical long-term support at USD1760.00 an ounce, the 50% Fibonacci retracement of the March 2020 to August 2020 rally. A daily, and by default, a weekly close below USD1760.00 will be an extremely bearish technical development.
Failure opens up further losses to the 61.80% Fibonacci at USD1689.00 next week, but I fear that losses could extend to the low USD1600.00 in a potential capitulation trade scenario. Gold must negotiate the US data today, and China data on Sunday, to survive at present levels. Given the inflation-panic bond-mania sweeping global markets, I do not hold out much hope for its chances.