Oil slides, gold falls as dollar rises

Oil falls heavily in Asia

Oil markets fell on Friday as risk aversion and China growth fears weighed on prices. Brent crude fell by 2.40% to 106.10, with WTI falling by 2.20% to USD 101.70 a barrel. The tightening Covid-zero restrictions in Shanghai, and fears omicron has spread in Beijing torpedoed sentiment today, sending prices lower once again in Asian trading. Brent crude is 2.50% lower at USD 103.50, and WTI is 2.60% lower at USD 99.10 a barrel, with stop-losses occurring as it fell through USD 100.00 a barrel.

I am sensing a possible turn in sentiment in oil markets now, because two ostensibly bullish headlines have been completely ignored by Asian markets in a world where crude supplies are supposedly, very tight. Firstly, Reuters is running a story suggesting that Europe may be preparing “smart sanctions” on Russian energy imports. I have no idea what a smart sanction is, but anything that has oil, sanctions, Russia, and Europe in the same sentence, should be bullish. Secondly, a major Libyan oil terminal has suffered heavy damage during recent clashes there.

It seems that China is the elephant in the room and markets feel that slowing China growth could materially change the supply/demand equation on international markets. That is a risk I have mentioned in the past, but I have reservations that any European energy sanctions on Russian oil and natural gas can be ignored for long. The week also has plenty of binary outcome risk from the week’s data calendar internationally, and US earnings, which could swing prices either way. I do acknowledge the China risk, though.

With that in mind, I am sticking to my guns and continue to expect that Brent will remain in a choppy USD 100.00 to USD 120.00 range, with WTI in a USD 95.00 to USD 115.00 range.

Gold wilts as the US dollar rallies

Gold received no risk-aversion bids on Friday, as a soaring US dollar squeezed out the speculative longs in gold, sending it 1.0% lower to USD 1932.00 an ounce. Gold continues its retreat in Asia as the US dollar rises, losing another 0.75% to USD 1917.50 an ounce. It appears that the USD 2000.00 an ounce region has proved an insurmountable barrier once again, and the fast money is now running for cover.

I said on Friday that gold looked vulnerable to a failure of the USD 1940.00 support which could see speculative long positions getting culled. That has now occurred and USD 1940.00 now becomes intraday resistance. Gold is in danger of now breaking nearby support at USD 1915.00 an ounce and then testing critical support at USD 1880.00. Failure of USD 1880.00 signals a capitulation trade targeting the USD 1800.00 an ounce region where patient investors could consider loading up on gold longs once again.

On the topside, gold has resistance at USD 1940.00, USD 1980.00, and USD 2000.00 an ounce. I believe option-related selling at USD 2000.00 will be a strong barrier as evidenced by the price action last week.

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Author: Jeffrey Halley