An easing in the severity of the Texas big chill appears to have been the critical factor that set off the tumble in oil prices overnight. With the speculative market long to the eyeballs in recent times, a correction was well overdue. As prices fell overnight, they gained their own momentum as those late to the trade rushed for the exit doors.
The sell-off has continued in Asia, highlighting just how long the speculative market was before last night’s retreat. Brent crude fell 2.0% to USD63.60 overnight, continuing 1.15% lower to USD62.85 a barrel in Asia. WTI fell 2.35% to USD60.25 overnight, and the failure of the USD60.00 a barrel mark in Asia saw it plummet another 1.50% to USD50.35 as more stop-losses were triggered.
Brent crude has initial support at USD62.10, today’s intra-day low, followed by USD60.00 a barrel. A failure of USD60.00 a barrel is likely to cause another wave of panic selling, although given Brent’s recovery this morning from its lows, I think that scenario remains unlikely. WTI’s intra-day low at USD59.35 a barrel is initial support, with failure targeting USD57.50 a barrel. A capitulation of USD57.50 signals a much deeper correction targeting USD53.50 a barrel.
The retreat in prices over the last 24 hours has had the benefit of relieving the very overbought technical picture. With oil futures spreads in backwardation, US production disrupted, and OPEC+ compliance solid, oil remains a buy on dips, and although the sell-off could get ugly, it is unlikely to last very long into next week.
Gold is poised to collapse
The US dollar goes up and down; gold goes down. US yields go up and down; gold goes down. That same pattern played out overnight as gold closed on its lows at USD1775.00 overnight, only to fall 0.55% to USD1765.00 an ounce this morning.
Gold is now testing its critical long-term support region around USD1760.00 an ounce, the 50% Fibonacci of the March to August rally last year. Gold has tested USD1760.00 an ounce this morning before staging a minuscule recovery. A weekly close below USD1760.00 would be a very negative technical development and likely spark the liquidation of longer-term bullish positioning next week.
If support fails, gold will initially target is 61.80% Fibonacci at USD1680.00 an ounce, but I can envisage further losses to the USD1600.00 an ounce region. Gold’s appeal as an inflation hedge may start to find new friends at that level.
The only positive I can note on gold now is that its Relative Strength Index (RSI) is near to oversold territory on a daily basis. Gold has typically bounced over the past three months when he RSI approaches 30.0, often quite impressively. Gold will struggle to recapture USD1800.00 an ounce, even under this optimistic scenario. The best case I can envisage is for gold to range between USD1760.00 to USD1800.00 an ounce – hoping that salvation arrives from moves in other asset classes, notably US government bonds.