The API data released this week showed that investors are excessively anxious about the supply glut. We saw a major draw down and it was much larger than the forecast.
The drawdown in inventory data was adequate to sway speculators to reverse their position which brought the life back for the black gold. But the game is not over yet, because we have another official number which majority of traders are focused on, and it is your crude oil inventory data. In an ideal situation, we want to see the crude inventory data echoing the same message as API number. However, looking at this from a historical perspective, it would not be wrong to say that there are no major signs of correlation.
The near term support is near at the level of 42 and resistance is at 47.32 which was the highest level since June 12. The price action was very bullish yesterday on the back of the API data and it is highly likely that traders may target the level of 48.62 which we have not seen since June 5th if the crude oil inventory data also provides its shoulder for support.
However, the policymakers are still leaning to scale down the size of their balance sheet in the near term and this could be in September. The minutes were rich in stating that there could be more rate hikes coming this year but of course, that would depend on the economic data and if inflation improves. If you look at the economic numbers such as manufactured goods data, it fell short of expectations yesterday and this is an important ingredient for the GDP. A lower reading for the US GDP would entice more interest in gold in the longer term.
The below chart is an interesting one as it shows the cost of puts versus calls for gold ETF (NYSE:GLD) has dropped to the lowest level since November 8th. Options traders are highly likely to shift their position at these low points. If you look at the gold ETF itself, we could see the sell-off was triggered by double top and now we are most likely forming a double bottom which means that the price could bounce back up.