Oil and gold both lose ground

Oil retreats on Retail Sales and API data

Profit-taking also denoted the price action in oil overnight as Brent crude and WTI fell slightly. Poor US retail sales data increased concerns about the US consumption outlook, already fragile as Covid-19 movement restrictions rachet higher across the country. API Crude Inventories rose to a much higher than expected 4.174 million barrels, deepening the gloomy tone and prompting more traders to lock in gains.

Brent crude eased 0.32% to USD43.80 a barrel, falling by another 0.55% in Asia, to USD43.55 a barrel. Brent crude remains well above initial support at USD42.75 a barrel, its 100-day moving average (DMA). A failure could see the correction lower deepen to USD42.00 a barrel. Near-term resistance remains at USD45.20 a barrel.

WTI fell just 0.25% overnight, edging another 0.60% lower to USD41.10 a barrel in Asia this morning. Resistance remains at USD42.00 and USD43.00 a barrel. Support lies at its 100-DMA at $40.40 a barrel, followed by a double bottom at USD40.10 a barrel. Should that give way, a deeper correction to USD39.00 a barrel is likely.

With no clear signals from OPEC+ as yet about modifying their production cut schedule, fading upward momentum will make oil vulnerable to a deeper correction lower. However, the oil futures calendar spread contango has noticeably narrowed in the past week, likely due to vaccine announcements spurring 2021 recovery hopes. A structural low is most likely in place for oil now, and we are unlikely to revisit the 1st November lows, even if oil trades sideways at these levels for a while.

Gold’s momentum fades

Gold has a disappointing session overnight, following equities lower, even as US yields themselves fell. The fading upward momentum is highlighted by gold’s attempts to test USD1900.00 an ounce, and subsequent failures there over the past three sessions. More disappointing is its inability to decorrelate itself from falling equity markets, and its ignoring of falling US yields, which should be supportive.

That suggests that the short-term market bought the dip and is now long, but has run out of friends. Gold has resistance at USD1900.00 an ounce, followed by the 50 and 100-day moving averages at USD1903.00 and USD1908.00 an ounce. Trendline support, dating back to April, is nearby at USD1867.00 an ounce. A daily close below risks further losses to USD1850.00 an ounce, possibly extending to the 200-DMA at USD1790.00 an ounce.

Until gold starts finding support again from falling US yields and can decorrelate itself from the negative equity association, it remains a sell on rallies in the near-term.