Oil Retreats, Gold Volatility Continues

Oil Stays on Summer Holidays

Brent and WTI both retreated overnight, moving both contracts back into range-trading no-man’s land. A stronger US dollar and higher US yields capped price increases, with the coup de grace administered by the relatively uneventful passing of Hurricane Laura through America’s oil heartland.

Brent crude failed at its 200-DMA, today at USD45.85 a barrel, on its way to a 1.40% fall to USD45.010 a barrel. WTI fell 1.0% to USD43.00 a barrel, although structurally it looks the better of the two, being well above its 200-DMA at USD41.50 a barrel. The dramatic fall in US crude inventories in the past month means that WTI is best placed to lead a topside breakout.

Weak demand from Asian buyers has balanced out any benefits to be gleaned by a weaker US dollar today, with both contracts unchanged from their New York closes. The contango on the Brent futures curve continues to add a cautionary note for bullish traders, suggesting that short-term supplies remain abundant. The respective relative strength indexes (RSI’s) are neutral, meaning oil could move either way from these levels, suggesting that crude’s long hot summer holiday will continue into next week.

Gold Plays Follow the Leader

Gold prices retreated sharply overnight as US long yields rose sharply. Gold fell by 1.30% to USD1930.00 an ounce in another volatile session. With the US dollar weakening and stock markets rising today in Asia, though, gold has recovered some of those losses, rising 0.60% to USD1941.00 an ounce today.

If nothing else, the overnight move by gold highlights just how sensitive it is to US rates in the shorter-term horizon. Despite the large ranges seen intra-day this week though, gold is now mid-range for the week between USD1905.00 and USD1970.00 an ounce.

Gold’s RSI is comfortably in neutral territory, hinting that the yellow metal could move either way and suggesting that more volatile range days lie ahead. Much will depend on the direction of US yields in the 10-year to 30-year tenor. From here, gold could just as easily finish above USD2000.00 an ounce, as it could below USD1900.00.

Gold’s long-term bullish fundamentals remain solidly in place. What is becoming clear is that upward progress will not be as linear as previously.