Oil weakens in Asia
Oil prices eased overnight and that has continued in Asia. Weaker industrial metals and natural gas and coal prices appear to be dragging oil lower as well in the short-term, although oil’s medium-term fundamentals remain as robust as ever. Brent crude fell by 1.30% to USD 84.75 overnight, easing another 0.65% lower to USD 84.30 a barrel in Asia. WTI had a volatile session, finishing 1.0% lower at USD 82.55 before easing another 0.40% lower to USD 82.25 a barrel in Asia. Regional buyers appear content to await better levels to buy once again, in sharp contrast to the price chasing earlier this week.
Brent crude has drifted to the lower end of its USD 83.80 to USD 86.00 range which forms initial support/resistance. That is followed by the two-month trendline support, today at USD 82.70 a barrel. WTI has failed three times at USD 84.00 a barrel, forming strong initial resistance now. It has traced out a double bottom at USD 80.80 followed by trendline support at USD 80.00 a barrel.
A few more days of range-trading will bring the overbought relative strength index (RSIs) technical indicators firmly back into neutral territory. That will likely set the stage for another leg of the rally to occur later next week. The corrective spike lower I have been writing about could still occur but is now increasingly unlikely.
Gold defies higher US yields
Gold defied higher long-dated US yields once again overnight and a rising US dollar. Gold rose a modest 0.06% to USD 1783.00 an ounce but its resilience in the face of higher US yields and the US dollar is an undeniably bullish development. Also comforting bullish investors is that gold continues to trace out a series of higher daily lows and the slow by steady gain is not dominated by fast-money momentum traders, who run away at the first sign of trouble. Gold has risen 0.20% to USD 1787.00 an ounce in Asia as the usual weekend risk-hedging buyers load up. Notably, the Evergrande payment story has not weighed on gold, another short-term indicator of bullish price action.
That said, gold is slowly but surely forming what appears to be the second shoulder of an inverse head and shoulders pattern through a series of higher daily lows. In the bigger picture, a rise through USD 1835.00 an ounce would trigger the multi-month inverse head-and-shoulders technical pattern and swing gold’s outlook back to positive, targeting a move back above USD 2000.00 an ounce.
In the shorter term, the rising one-month support line is at USD 1769.500 an ounce today followed by support at USD 1760.00 and USD 1745.00 an ounce. Resistance is at USD 1790.00 followed by the 100 and 200-day moving averages at USD 1792.00 and USD 1794.00 an ounce, and then USD 1800.00.
