Oil’s summer doldrums continue

Oil’s long summer holiday continues, with both Brent crude and WTI rallying modestly on Friday, but still firmly ensconced in their one-month ranges. Asian trading has been directionless, with Brent crude easing 40 cents to USD43.45 a barrel, and WTI is edging 30 cents lower to USD40.05 a barrel. The net effect has been to erase Friday’s modest gains.

Of the two, WTI looks more vulnerable to a downside correction. A fall through USD40.00 a barrel is perhaps signaling a retest of support at USD38.80 a barrel. Its 200-DMA is creeping lower, today residing at USD42.90 a barrel, and likely to cap any rallies in the near-term.

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Brent crude, on the other hand, has support at USD41.50 a barrel, but only a fall through USD40.00 a barrel will suggest a deeper correction lower is upon us. With evidence that US oil production is falling faster than expected, Brent crude should continue to find willing buyers on material dips.

Worries about the trajectory of US growth continue to cap price rises on oil, and those fears are well-founded given the pandemic’s inexorable march across the sunbelt states to the Midwest. A weaker dollar has supported the downside in recent weeks, but if US dollar strength continues this week, downside pressures may increase on both contracts. That aside, oil markets look balanced for now. The summer holiday is looking likely to continue for some time yet.

Gold makes new highs before retreating

Gold rose 1.0% on Friday as haven buyers hedged weekend risk. Gold climbed from USD1955.00 to USD1983.00 an ounce. Asia saw gold briefly trade at USD1986.00 an ounce, a new record high, before easing modestly to USD1973.00 by midday.

A stronger US dollar this week may make an assault on USD2000.00 challenging. Traders may prefer to await dips to the USD1940.00 to USD1950.00 an ounce support zone to add to long positioning, rather than chase prices higher at these levels.

Gold’s momentum, although slightly diminished today, remains firm, as it does on silver. A fall through USD22.3000 by silver could signal a deeper correction on gold, although this remains unlikely. US real yields remain negative across the curve, and nagging Covid-19 doubts stay to the forefront. Both factors will support precious metals. This week though, maybe characterised by range-trading rather than the buzz of new record high prices.

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