Oil rises, gold flirts with 1800

Oil strengthens in Asia

Oil prices rose on Friday as Jerome Powell signalled that supply chain disruptions and the “transitory” inflation will be us for quite some time yet. Brent crude rose 1.10% to USD 85.70, and WTI leapt by 1.95% to USD 84.15 a barrel, taking out resistance at USD 84.00 a barrel. With the Saudi Arabia Energy Minister signalling over the weekend that OPEC+ will remain cautious on production increases, both Brent crude and WTI have tracked higher in Asia from the get-go. News that the US Democrats are close to a final spending package, along with sharp jumps in natural gas and coal this morning, are also boosting oil’s positive outlook. Brent crude has risen by 0.60% through resistance at USD 86.00 to USD 86.20 a barrel. WTI has risen by 0.50% to USD 84.55 a barrel.

Although the relative strength indexes (RSIs) on both contracts have moved back into overbought territory, it is physical market demands, and not technical factors, that are driving price movements right now. Although a sharp correction lower on a bearish headline cannot be ruled out in either contract, and a sell-off is likely to be followed by an equally sharp rally as the buy-the-dippers, speculative and physical, pile in.

A daily close of Brent crude and WTI above USD 86.00 and USD 84.00 a barrel this evening would be a bullish technical indicator, signalling that the next move higher in oil prices is underway. In the bigger picture, only a fall through their respective trendline supports at USD 83.25 for Brent, or USD 80.00 a barrel for WTI, changes the bullish outlook.

Gold rollercoaster session

Gold had a rollercoaster session on Friday, rising as high as USD 1814.00 an ounce at one stage as the break of USD 1800.00 triggered stop-loss, momentum and model buying. The Powell taper comments put a floor under the US dollar and saw an intra-day retreat, but gold still finished 0.54% higher at USD 1792.50 an ounce. In Asia, gold has resumed its rally, climbing 0.30% to USD 1798.00 an ounce.

The price action on Friday, a vicious rally, followed by an equally vicious sell-off, highlights how non-sticky the fast-money players are in gold when it starts to see some intra-day volatility. The whipsaw price action suggests that any rally in gold will struggle to maintain a multi-day outlook while those types of flows dominate volumes. However, Mr Powell did say that “transitory” inflation pressures will be with for some time to come, and it is increasingly looking like some sort of inflation hedging is being built into gold prices. Gold’s challenge will be whether it can weather an FOMC tapering announcement next week, especially if, as expected, US yields and the US dollar start their move higher again. I frankly, have my doubt.

That said, gold is slowly but surely forming what appears to be the second shoulder of an inverse head and shoulders pattern through a series of higher daily lows. In the bigger picture, a rise through USD 1835.00 an ounce, would trigger the multi-month inverse head-and-shoulders technical pattern and swing gold’s outlook back to positive, targeting a move back above USD 2000.00 an ounce.

There is no doubt the shorter-term technical picture looks bullish though, especially as gold has now closed and remained above the 100 and 200-day moving averages at USD 1791.00 and USD 1793.85 an ounce. A daily close above this zone tonight should signal more gains. Behind them, gold has support at USD 1780.00 an ounce. Resistance appears initially at the overnight high around USD 1814.00 before gold faces a formidable zone of multi-month daily highs between USD 1832.00 and USD 1835.00 an ounce.

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