Oil remains near its recent highs
Oil prices remained firm overnight, despite the lower than forecast US CPI data. Both Brent crude and WTI recorded small increases leaving them at the top of their September ranges. The energy component of the US CPI basket rose overnight, despite other components dragging the overall number down, with no real sign in physical markets of lower demand leading to softer prices. Additionally, Tropical Storm Nicholas has disrupted oil production and refining recovery in the Gulf of Mexico, coming after the devastation of Hurricane Ida. In the bigger picture, natural gas prices are rocketing in the northern hemisphere ahead of winter, especially in Europe and Asia. I believe that will provide some indirect support to oil prices going forward, given the ominous look to the natural gas rally. It could well be a winter of discontent.
Brent crude rose by 0.40% to USD 73.90 overnight, adding 0.30% to USD 74.15 a barrel in Asia. Having cleared resistance at USD 74.00 a barrel, and with Europe arriving, Brent crude is poised to rally to USD 75.00 and possibly USD 76.00 a barrel in the days ahead. Only a fall through USD 72.75 a barrel invalidates the bullish outlook.
WTI rose by 0.20% to USD 70.75 overnight, before climbing by 0.30% in Asia to USD 71.00 a barrel. WTI should now target USD 72.00 and potentially USD 74.00 a barrel in the days ahead. Only a failure of USD 70.00 a barrel will invalidate the bullish outlook.
Gold, the reverse-inflation hedge
It is ironic that as US inflation underperformed overnight, that gold traced out a 0.60% gain to USD 1804.50 an ounce. Apart from partially confirming that gold only really hedges Latin American style-inflation, much of gold’s rally was due to the intraday spike lower by the US dollar. That said, it held onto all those gains even as the US dollar clawed back all of its losses, hinting that some new buyers had been entered the market.
Gold has faded in the Asia session though, falling to USD 1801.00 as Europe starts its day. With the US Dollar expected to remain firm as risk-sentiment sours, gold may have had its one day in the sun, much like Chinese equities these days. The underwhelming performance of gold of late has not changed.
Gold rose to initial resistance at its 200-DMA at $1809.00 overnight but retreated from there. The 200-DMA resistance remains intact therefore and is followed closely by the 100-DMA at USD 1816.50 an ounce and the formidable series of multi-day tops around USD 1834.00 an ounce. Support remains clearly marked at USD 1780.00 and failure will signal deeper losses to USD 1750.00 an ounce.