By Barani Krishnan

Investing.com — Last weekend, I wrote about how  unduly escalates asset values, taking a page from the 1990s speech of Federal Reserve legend Alan Greenspan, to shine a light on the oil market which has racked up double digit gains in the first two weeks of the year on more hype than fact.

U.S. prices have fallen at an alarming rate since then. This could be the most severe month of 2008, when the financial crisis hit October 2008. Although crude oil prices dropped as high as 5.5% Friday, in solidarity with Wall Street, the price of crude later recovered to be 1% lower. This week was also the fifth consecutive week. Aside from Greenspan, I was reminded this week of the wisdom of John Maynard Keynes who said “markets can remain irrational longer than you can remain solvent”. It will be interesting to see how much longer the oil irrationality continues.

We will be reviewing the gold moves this week. They seem too rational to me for longs in precious metals. This is good, because the gains that are built over time may last longer than those at the top of the market.

In what some are already calling “The Year of the Great Inflation”, gold could just be the asset to shield investors from price pressures growing at their fastest pace in four decades and to give investment portfolios that little extra shine.

It is not expected to move in accordance with inflation.

In 2022, gold will probably gain two steps ahead and one back. This is similar to how it behaved from January.

You can think of the slow-mo trailer as an analogy for motion pictures. That will characterize gold’s moves these days compared with recent years.

If you buy yellow metal for inflation protection and expect a repeat of the rate that brought it to records two years back, then you might be disappointed.

Gold has lost just $13 (or 0.6%) since the beginning of January.

Gold’s moves in 2022 seem almost pedestrian when compared with the lightning pace at which it often fell last year, ending down 3.6% for its first annual dip in three years, and the sharpest slump since 2015.

This is evident even more when you compare it to 2020. That was gold’s most glorious year in a decade when it went from a March low of $1,485 an ounce to an all-time high of just over $2,121 by August. The price of gold lost some of its gains, however, and it suffered dramatic drops for three months, before a second bumper December gain.

Gold’s progress may seem “unexciting” now but it stands out for one thing: the ability to stay in the $1,800 territory, despite pressure from the two-year highs in and the accompanying rally at times in the – both of which act as “twin evils” to gold.

Although the expectation that the U.S. Federal Reserve would increase interest rates this year in an effort to reduce inflation to 40 years highs, the yellow metal showed resilience. According to the, the annual rate rises were to be implemented by the Federal Reserve to counter the 40-year high inflation. Inflation rose by 7% from December to December according to the. In general, rate hikes favor the dollar while they are negative for gold.

The key resistance of $1830 was also broken this week by gold, allowing it to hit a record high for the second month at $1,848.

Six weeks ago, from early November onwards, $1,830 was nearly like an insurmountable fortress to bulls of gold.

Now, there appear to be just three more resistance points for gold longs to clear in their quest to reach the next major level of $1,900 – a level it hasn’t touched since May. These resistance points include $1,860 and $1,880.

Is it going to reach these points quicker or will it continue moving towards them?

We will see.

Gold Price & Technical Outlook

Gold futures’ most active contract on New York’s Comex, , settled Friday’s trade down $10.80, or 0.6%, $1,831.80.

It rose 0.8% for the week.

The Thursday high for gold was $1,848.50.

Sunil Kumar Dixit is chief technical strategist at SK Charting.com. He said that the weekly price movement showed strong momentum in gold prices to exceed the $1830-$1,835 wall and test the $1.848 level. This was supported by bullish stochastic signal on daily, weekly, and monthly charts.

Gold’s Relative Strength Index was also positioned on the stronger side, he said.

On the negative side, the dollar’s rebound on Friday capped gold’s rise, pushing it to a weekly close at $1834 (down $14 from high of 1848) but $29 above the week’s low of $1805.

“In the week ahead, we can expect a sideways distribution of momentum with bearish consolidation, as a bearish reversal top is spotted on the daily chart. This won’t alter the trend, but it could start a correction towards the 38.2% Fibonacci level at $1,825 or the daily middle Bollinger Band at $1816.

Dixit stated that gold must maintain an uptrend by maintaining a weekly closing above $1,825 as failing to do so will result in a 50% Fibonacci correction at $1797.

Oil Market Activity

Crude prices scored a fifth consecutive weekly win following a preliminary plunge. The dip was eased by longs before the close.

The dive earlier in the day was triggered by worries about U.S. gasoline inventories piled up over the past three weeks and Wall Street’s worst weekly rout since the coronavirus pandemic. It was seen as an indication that oil prices are closer to $90 per barrel, which could lead to more headwinds in the future for crude. However, the majority of oil longs seem determined to keep pushing the rally.

Craig Elam from OANDA said crude is running into resistance and losing momentum on the way to $90. “It’s a big psychological barrier as once that goes, people are just counting down the days until we have triple-figure oil,” he said, referring to forecasts for $100 a barrel. “It’s a big deal.”

U.S. gasoline stocks increased by almost 6,000,000 barrels last week, and grew to an unprecedented 24 million barrels during a 3-week period. The record-breaking demand was seasonal-weak which contrasts against the rise in oil prices.

The data suggests that as demand for gasoline, America’s preeminent fuel product, has cratered since the end of holiday travels for the 2021 year-end.

U.S. refiners are also turning an excess of crude oil into gasoline, while Omicron version of the coronavirus was decreasing regular driving, work-commuting, and other activities that require fuel.

U.S. crude oil saw its stockpile increase last week for the first-time in eight week. This was after a decrease of 4.55million the week prior. Only 6 Million barrels of crude oil have been reduced in the last three weeks. This explains only a portion of the gasoline supply.

The U.S. inventory of oil distillates which is used in the production of diesel, for vehicles, trains, cars and aircraft, fell by 1.43 million barrels after an increase from 2.54million last week.

Wall Street was hit hard this week by investors trying to reduce stock market valuations that were too high during the pandemic of two years ago. Inflation is at its highest point in 40 years. This prompted Wall Street’s selloff.

Crude Price & Technical Outlook

U.S. crude oil settled at $85.14 per barrel, down 41 cents or 0.5%. Earlier in Friday’s session, WTI tumbled more than $4, or 5%. WTI hit an all-time high of $87.91 Wednesday. This was its highest level in seven years. It is still up over 1% per week. The past five weeks have seen it increase by around 20%.

The London-traded benchmark oil price settled at $87.89 per barrel, down 49c, or 0.6%, after trading in New York. Brent rose 2% in the past week and was around 20% higher over the previous five weeks. It had hit a seven year high of $89.48 last Thursday.

Dixit from SK Charting pointed out that WTI broke the $85.40 multi-year peak and reached $87. This was a new high not seen since November 2014. Before profit-booking by retailers for a weekly settlement $85.14, Dixit noted.

“Going into the week ahead, we may see some cooling off in the heated momentum and price correction towards $82, and the extended correction may reach the horizontal support areas of $80 and $78 and the weekly middle Bollinger Band of $76.50,” said Dixit.

WTI may retest $87 if there is continued strength above $85.50. This could extend WTI’s gains to $89 and the eagerly awaited $90 psychological handle.

Disclaimer:Barani Krishnan is not a shareholder in any of the securities or commodities he writes about.