Oil, gold looking for direction

Oil prices trade sideways

Oil prices booked modest gains on Friday night after an on-target US Non-Farm Payroll release suggested that the US economy continues to perform well. Brent crude rose 1.86% to USD 113.05, and WTI rose by 1.80% to USD 110.50 a barrel. China slowdown fears initially saw all those gains pared in Asia, but as the session has gone on, oil has clawed back most of its losses. Brent crude is down just 0.40% to USD 112.60, and WTI is down 0.55% to USD 109.85 a barrel.

A proposed G7 ban on Russian oil imports has had zero impact on oil markets today, with China nerves taking precedence. Nevertheless, it seems inevitable that both the EU and Japan will be competing for more non-Russia supplies in the future, and this is underpinning prices. Soaring energy demand in India due to the heatwave, as well as tight natural gas markets, should mean coal, gas and oil prices remain self-supportive of each other.

That leaves oil at the mercy of the Ukraine/Russia conflict and the EU oil ban supporting the downside, while China’s slowdown fears . Ukraine/Russia conflict risks will be sorely tested today if Vladimir Putin declares war officially against Ukraine at today’s May 9^th parade. I continue to believe that energy markets are under-pricing Russian risks, be it external sanctions, or Russia’s potential response.

Brent crude has formed a triple top at USD 114.75 a barrel, which will be a formidable barrier in the near term. Support lies at USD 103.50 a barrel and I am sticking to my broader USD 100.00 to USD 120.00 a barrel wider range ahead for now. WTI has resistance at USD 111.50 with support at USD 100.00 a barrel. Once again, I remain comfortable with a USD 95.00 to USD 115.00 a barrel outlook in the medium term.

Gold trades sideways

Gold has eased by 0.50% today in Asia to USD 1874.00 an ounce, erasing Friday’s modest 0.35% gain. There are some constructive notes in gold’s recent price action. It is holding up remarkably well versus a rampant US dollar and a US yield curve where a lot of it starts with three in yield terms. It actually managed to rise slightly on Friday equities fell and the US dollar rose. I suspect some of that support was derived from weekend risk-hedging, which has evaporated today.

Gold is definitely outperforming bitcoin right now, which has tumbled through support at USD 37,400.00 on Friday and is trading much lower at USD 33,740.00 this morning. That should give the gold bugs heart but could also be coincident with the return of China from holidays, or suggestive that there is more than a little risk-hedging based buying quietly going through the market.

Gold looks set to continue vacillating around its 100-day moving average, today at USD 1882.50, in a wide but real range of USD 1850.00 to USD 1920.00 an ounce, for the time being. Risk aversion buyers supporting the downside, while US dollar strength caps rallies. Only failure of the break-out triangle apex at USD 1835.00 swings gold back into bearish territory. That said, gold needs to close above resistance at USD 1920.00, and preferably USD 1960.00 an ounce to signal a renewed structural move higher. I foresee more whipsaw trading ranges in the days ahead.

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Author: Jeffrey Halley