Here Is What You Need To Know About Oil and Gold

Here Is What You Need To Know About Oil and Gold

Oil prices are moving higher today as the OPEC+ meeting has been adjourned without any decision on oil supply. The fact that no new date has been set for a new meeting shows that OPEC members are out of sync once again. When we look at the oil supply cut, there is no doubt that Saudi Arabia has accepted and actioned the greatest oil supply cut. But now, we have small players like the UAE flexing their muscles and not agreeing to a supply cut. This is a matter of concern. For the time being, it doesn’t look like that there may be a supply war, but oil traders must never forget the consequence of previous oil supply wars and the power that Saudi Arabia has in terms of its oil output production increase.

For now, oil prices are moving higher, and it seems very plausible that oil prices; both Brent and Crude, could easily continue their journey towards the 80 dollar mark. In fact, some speculators believe that given the strong economic recovery that we are experiencing around the globe, it may not be a surprise if Brent oil comes close to its $100. The most bizarre element is that not many would have believed a few years back that oil prices would ever touch that level, especially when we look at the US shale oil production.

OPEC members must remember that their stubbornness could cost them an arm and a leg because, with every single dollar increase in price, the US shale oil production becomes even more profitable for the US players. The big threat is that this could lead to a massive supply glut, and we could easily witness another situation where oil prices may begin to meltdown once again because of higher supply.

OPEC members must address the soaring oil price issue as higher oil prices threaten global economic growth. We have already seen a hint of this coming out of Washington. However, it is unlikely that President Biden would adopt a similar stance to former US President Donald Trump’s one.

In terms of technical analysis, both Crude and Brent oil prices are in a strong uptrend. There is no doubt that both are way overbought according to their Relative Strength Index on the daily time frame. This means that there are strong chances that we may see the price reverting towards its mean. For crude oil, this means that the price could move towards the $69 mark as this is where the 50-day SMA is trading. As for the Brent price, we could see the price easily reverting towards the $71 level, which is where the 50-day SMA is trading.

What’s Happening With Gold?

The precious metal gold price is holding on to its gains, but we do see evidence of gold traders picking up more strength. A lot of the current strength in the gold price is primarily due to the fact that we do have weakness in the dollar index because the US NFP number wasn’t overwhelming. This has made traders believe that there are fewer reasons for the Fed to be overly optimistic about the US economy, and perhaps the best days for the US economy are already over. This doesn’t mean that the US economy will not see strong economic growth, but we are unlikely to see the same kind of growth for the US economy that we experienced during the past few quarters.

From here onwards, we are likely to see more gradual growth, which will give less reason for the Fed to be highly optimistic about the US economy. The fact that we may not see the same kind of astonishing numbers also means that inflation concerns that have been overblown may begin to vanish as well.

Traders should not take the above argument in the sense that the Fed may not begin the tapering process. Tapering is inevitable, and it will take place. But the fact is that a lot of that hawkish narrative is already built into the gold price, and now we may not see a similar kind of intense selloff in the gold price.

For now, the event that matters the most for gold traders is going to be the Fed minutes, and traders would like to see what the Fed members make of the recent US NFP. It is unlikely that we will see any significant shift in their tone in comparison to what we already gleaned from their speeches last week. Hence, we could see more gains for the gold price in the coming days. The critical price level for the gold price is 1800, and if the price stays above that price level, we are likely to see more strength for gold price.