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Oil Range Trades, Gold Rises Slightly

Oil’s range-trade continues

With liquidity and volumes much reduced this week, oil continued to range trade overnight and through Asia, lacking the momentum to break one way or the other. Brent crude has risen 0.70% today to USD51.25 a barrel. WTI has risen 0.65% to USD48.00 a barrel.

Oil appears to be underpinned by the passing of the US stimulus and government funding omnibus legislation. The imminent increase in supplies in January by OPEC+ and the Georgia Senate runoffs next week appears to be introducing a note of caution to an otherwise positive backdrop. That probably means that oil will continue to range sideways, albeit noisily, for the rest of the week.

Brent crude has resistance at USD52.50 a barrel and initial support at USD50.50 a barrel, followed by USD49.00 a barrel. WTI has resistance between USD49.00 and USD49.25 a barrel, with support USD47.15 and then USD46.00 a barrel. With the speculative market structurally long, and with liquidity reduced this week, the vulnerable side is likely to be down. But any culling of speculative long positioning is likely short-lived and will not threaten longer-term support regions.

Gold lacks upward momentum

Gold probed the USD1900.00 an ounce region overnight, but once again, failed at its 100-day moving average, today at USD1896.00 an ounce. That suggests that gold lacks the momentum at the moment to materially break higher, even as the US dollar slowly moves lower this week. The USD1895.00 to USD1905.00 an ounce region would appear to be a bridge too far unless we see favourable direction moves in other asset classes. Bitcoin’s abrupt reversal from yesterday may also be tempering bullish sentiment.

Silver has also run out of momentum, unchanged today in Asia at USD26.1900 an ounce. It has failed above USD26.5000 an ounce twice this week, and that is quite some distance from last week’s highs at USD27.4100 an ounce. That increases the likelihood of a downward squeeze in speculative long positions, with a fall to USD25.0000 an ounce possible.

Investors should continue to look to silver for clues about gold’s next direction. Although both precious metals have a positive longer-term outlook, especially gold, holiday markets may inflict some pain on bullish sentiment in the near term. Both remain buys on dips though.