Precious Metals & Energy – Weekly Review and Outlook

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By Barani Krishnan – Last weekend, I wrote about how asset values ​​have escalated dramatically, taking a page from Federal Reserve legend Alan Greenspan’s 1990s speech to shed some light on the oil markets. The mine saw double-digit growth in the first two years. weeks of the year are more exaggerated than they actually are.

Since then, the US has plunged at a rate that would make January its worst month since the height of the financial crisis in October 2008. Crude oil prices initially fell as much as 5% on Wednesday. Six followed Wall Street, but fell back later to end the day down just 1% and up for the fifth straight week. In addition to Greenspan, this week I was reminded of the wisdom of John Maynard Keynes, who said “the market can be irrational longer than you can sustain the solvent.” We’ll just have to see how long the irrationality lasts with oil.

This week, we’ll take a look at gold’s moves, which seem a bit too implausible relative to the precious metal’s price demand. For me, that’s good because profits built over time are more likely to stick than the spikes achieved at the top of the market.

In what some have called the “Year of the Great Inflation,” gold may just be the asset to insulate investors from price pressures, which are growing at their fastest pace in four decades and helping portfolios continue to grow. Invest in more shine.

But don’t expect its moves to match inflation.

If anything, gold in 2022 is likely to rally by taking two steps forward and one step back, the same way it has been since early January.

Similar to motion pictures, think of a slow-motion clip instead of a dazzling intro. That would characterize gold’s moves these days compared to recent years.

Anyone buying the yellow metal as a hedge against inflation and expecting a rerun of the pace that hit record highs two years ago is likely to be disappointed, to say the least.

Since the beginning of January, gold has gained only $13, or 0.6%, due to inflation.

Gold’s moves in 2022 seem almost walking distance when compared to the rapid pace it typically declines last year, ending down 3.6% in its first annual drop in three years and the decline strongest since 2015.

The difference is even more dramatic when compared to 2020. It was gold’s best year in a decade as it went from a March low of $1,485 an ounce to an all-time high. just over $2,121 in August. It paid off, of course, after that, with a staggering drop over three months before another bumper increase in December.

Gold’s advance may seem “insignificant” for now, but it stands out for one thing: its ability to sustain in the $1,800 territory, despite pressure from two-year highs and the rally away accompanied sometimes – both act as “evil twins” to gold.

The yellow metal has shown resilience despite expectations that the US Federal Reserve will embark on a series of rate hikes this year to combat the highest inflation in 40 years, which has up 7% in the year to December, according to. Interest rate hikes are generally positive for the dollar and negative for gold.

Gold also broke through the key $1,830 resistance this week to hit a two-month high above $1,848.

For the previous six weeks, since the beginning of November, the $1,830 level was almost like an impregnable bastion for the golden bulls.

Now, there seem to be only three more resistance points for gold buyers to break through on their quest to reach the next key level at $1,900 – a level it hasn’t touched since May. Those resistance points are at $1,860, $1,880, and $1,899.

Will it reach those points faster or keep crawling toward them?

We shall see.

Gold Price & Technical Outlook

The most actively traded gold futures on New York’s Comex exchange, settled Friday down $10.80, or 0.6%, at $1,831.80.

For the week, however, it was up 0.8%.

Gold also hit a two-month high of $1,848.50 on Thursday.

Sunil Kumar Dixit, chief technical strategist at SK, said the week’s price action shows strong momentum for gold to break through the $1,830-$1,835 wall to test the $1,848 level, which is supported by daily, weekly and monthly bullish stochastic signals. charts.

Gold’s relative strength index is also positioned on the stronger side, he said.

On the negative side, Friday’s dollar rally capped gold’s upside momentum, pushing it to close weekly at $1834 ($14 down from 1848 high) but above 29 dollars against a weekly low of $1805.

“For the next week, we can expect a sideways momentum distribution with consolidation to the downside, as a bearish reversal top is spotted on the daily chart. That won’t change the main trend but it could start a short-term correction towards the 38.2% Fibonacci level of $1,825 and the daily average Bollinger Bands of $1816.”

More importantly, Dixit said, a weekly close above $1,825 is crucial for gold to sustain its uptrend as failure will extend the correction to the 50% Fibonacci level of $1,797.

Oil market activity

Crude oil prices recorded a fifth straight win for the week after a preliminary plunge was tempered before the close, as long as the long-term decline has been bought.

The drop earlier in the day was triggered by worries about US gasoline inventories piling up over the past three weeks and Wall Street’s worst weekly cycle since the coronavirus pandemic. For some, it’s a sign that prices closer to $90 per barrel could end up creating more headwinds for crude, though the majority of long oil stocks seem determined to boost momentum. increase.

Craig Elam, analyst at online trading platform OANDA, said crude oil hit resistance on its way up to $90 and lost momentum. “It’s a big psychological hurdle as people are just counting down the days until we get triple-digit oil,” he said, referring to the $100/bbl price forecast. “This is a big broblem.”

Data from the Energy Information Administration showed US gasoline stocks rose by nearly 6 million barrels last week and rose to a record 24 million barrels in a three-week period amid weak seasonal demand. , in contrast to the rally in global oil prices, data from the Energy Information Administration showed on Thursday.

Data shows that demand for gasoline, America’s preeminent fuel product, has fallen since the end of the holiday season in late 2021.

US refineries also appear to be converting large amounts of crude into gasoline while the Omicron variant of the coronavirus is easing some of the occasional driving, commuting and other fuel-intensive activities.

U.S. crude itself rose in inventories for the first time in eight weeks, rising 515,000 barrels last week, after falling 4.55 million barrels the previous week. Crude inventories have fallen by only about 6 million barrels over the past three weeks, only partially explaining the current balance of gasoline in the market.

Inventories of U.S. distillates, which are refined into diesel for trucks, buses, trains and ships as well as jet fuel, were down by 1.431 million barrels last week. by 2.54 million barrels last week.

Wall Street saw its worst swing this week since the Covid outbreak in March 2020 as investors tried to lower the board’s valuation of rising stock prices. during the two years of the pandemic. The sell-off was also triggered by fears of the Federal Reserve’s first rate hike in a pandemic era, battling to battle inflation that is at a 40-year high.

Crude Prices and Technical Outlook

The benchmark for US crude fell 41 cents, or 0.5%, at $85.14 a barrel. Earlier in Friday’s trading session, WTI was down more than $4, or 5%. On Wednesday, it hit a seven-year high of $87.91 on Wednesday. It is still up more than 1% for the week, accumulating about 20% over the past five weeks.

Trade in London, the global standard for oil, was down 49 cents, or about 0.6 percent lower, at $87.89 a barrel. Brent is still up 2% for the week and is also about 20% higher over the past five weeks, after hitting a seven-year high of $89.48 on Thursday.

SK Charting’s Dixit noted that WTI broke through a multi-year high of $85.40 and tested $87, the highest level not seen since November 2014, before traders sold take profit with a weekly payout of $85.14.

“Going into next week we could see some cooling in the hot rally and price correction towards $82, and a prolonged correction could reach the horizontal support areas at,” Dixit said. $80 and $78 and the weekly average Bollinger Band is $76.50.”

Otherwise, continued strength and a consolidation above $85.50 could prompt WTI to retest $87, extend the rally to $89 and deal with the much-awaited $90 sentiment, he said.

Disclaimer: Barani Krishnan holds no positions in the commodities and stocks he writes about.

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