Oil Resilient in the Face of a Stronger Dollar
Structural factors, notably the US big freeze, allowed oil markets to ignore the US yield nerves seen in other asset classes. Brent crude and WTI finishing almost unchanged at USD63.45 and USD60.10 a barrel respectively. In Asia, trading has been subdued with both contracts unchanged after an early dip.
With oil futures markets in aggressive backwardation, cold weather wreaking havoc in the United States, reducing oil and refinery output, any dips in oil prices will remain short-lived despite overbought technicals. In fact, a sideways consolidation for the subsequent few sessions would reduce the overbought technical picture and remove my main doubts about the oil rally.
A fall by Brent crude through USD62.80 a barrel could set up a short-term spike lowering targeting to USD60.00 a barrel. Similarly, a fall through USD59.50 a barrel by WTI could see it drop to the USD57.50 barrel region. Otherwise, oil remains a buy on dips and it will be very interesting to see what OPEC+’s technical committee decides in early March.
Gold is in Trouble
The move higher by US yields overnight has delivered a blow to gold, whose recovery from the February lows had always looked unconvincing. Gold fell overnight by 1.34% to USD1794.50 an ounce, and it has edged lower to USD1793.00 an ounce this morning.
The 50-DMA, which is at USD1855.00 today, has crossed below the 200-DMA at USD1857.00 an ounce, a bearish technical signal. The 100-DMA is just above at USD1867.00 and could well cross lower itself next week, adding more gloom to the bigger gold picture. All three moving averages form a formidable resistance zone to any gold price recovery.
Gold has support at USD1785.00 an ounce, the February low, followed by the 50% Fibonacci of the March to August rally around USD1760.00 an ounce. As I have stated previously, USD1760.00 is the must-hold level for the longer-term gold rally, and marked, I believed, a structural low. Failure may well provoke a capitulation trade by longer-term gold longs, and I expect gold would fall to near USD1600.00 an ounce in such a scenario.
Gold’s fate will be decided by the US data this evening and its effect on longer-dated US yields. If yields rise with as much vigor tonight as they did yesterday, gold faces a torrid session.