Oil bounces back, gold rallies

Oil prices rebound in delayed inventory reaction

Oil prices rallied strongly overnight in what appears to be a delayed reaction to the substantial US official crude inventory falls by crude and gasoline stockpiles the night before. From my perspective, it seems that the inventory numbers were lost in the noise of the FOMC outcome, which arrived at roughly the same time. The fall in the US dollar overnight has refocused investor attention, pushing oil higher.

Brent crude rose by 1.50% to USD 75.85 a barrel, and WTI rose by 1.40% to USD 73.40 a barrel. In Asia, both contracts have retreated by 0.35%, with the price action on equity markets suggesting that delta-variant nerves, and their potential effect on Asia’s recovery, have acted to push prices slightly lower.

Despite the retreat this morning, oil’s price action looks construction and barring any weekend shocks, both contracts looked poised for more gains next week. Only a sudden escalation in delta-variant nerves like last Monday week would change that narrative, and once again, I expect any sharp drops to be short-lived. The global recovery remains on track, and by association, oil consumption Even if that recovery will be much more geographically uneven than previously expected.

Brent crude broke higher through resistance at USD 75.00 overnight, and dips should be limited to this area. It has resistance at USD 76.10 and USD 76.70 a barrel, and I expect a USD 75.00 to USD 78.00 a barrel trading range next week. WTI has resistance at USD 73.60, with support at USD 72.50 a barrel. I expect WTI to trade in a firmer USD 73.00 to USD 75.00 a barrel range next week.

Lower US dollar sparks gold rally

The retreat of the US dollar overnight sparked gold into life as the US yield curve continued flattening once again. Gold rallied by 1.20%, or 21 dollars, to USD 1828.00 an ounce. It has edged slightly lower in Asia, with no evidence of risk hedging flows, with regional investors seemingly reluctant to chase prices at these levels.

Gold broke through significant resistance at the $1821.00 an ounce, the 200-DMA, overnight, and this should now limit losses into the end of the week. Gold is flirting with its 50-DMA at $1828.00 this morning, and its next technical target is $1835.00, followed by $1860.00 an ounce.

With the relative strength index (RSI) is in neutral territory, gold has plenty of headroom from a momentum perspective. That suggests that $1860.00 is not out of the question next week, especially if the US Dollar continues to trade on the weak side, as I expect. Of course, we have a heavy data calendar to negotiate to start the month, and another delta-variant scare could see US dollar strength temporarily return. Overall, though, gold’s technical picture looks very constructive.

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