By Barani Krishnan

Investing.com — Last week, oil was in red and gold closed above $1,800 for the first month in a row. Omicron worries were responsible for the first, and inflation the second. However, there is a third factor that may be more evident in the next week. Thinning year-end volumes can exacerbate moves, or exaggerate volatility.

This week, 2021’s last one was likely the last in which trading desks operated at maximum capacity before year-end holiday vacations. The fewer hands left on deck in the coming week, with possibly reduced numbers of day-time traders too, will mean “trading will remain very choppy for the rest of the year as investors grapple with falling volumes over the coming sessions,” said Ed Moya at online trading platform OANDA.

Where that will leave crude and bullion in the coming week is anyone’s guess. 

From the oil producers in OPEC to the rest of the bulls across the energy spectrum, Omicron is a scare — or worse, hoax — that will barely dent crude demand for the coming year. OPEC predicts that the world will consume 99.13 millions barrels of oil per day by the end 2022. This is an increase of 1.1 million over its November forecast.

Global health authorities maintain that the variant shouldn’t be taken lightly.

Rochelle Walensky of the Centers for Disease Control and Prevention said Omicron cases are “increasing quickly” and that the variant would “to be the dominant strain in America as it was in other countries over the next weeks.”

President Joe Biden warned this week that unvaccinated Americans face “a winter of severe illness and death.”

U.S. Covid-related infections rose 40% during the past week across the nation. In addition, deaths increased by over a third in that time frame with more Americans suffering from coronavirus every day.

But the CDC’s Walensky and other other global health officials have also repeatedly said the severity of Omicron’s impact as a variant — i.e. how gravely it can make people ill or kill them — is not known. Omicron has not been shown to cause serious illnesses in those who were inoculated. Officials deny that it is causing any severe illness.

Health authorities are urging people to receive booster shots to protect themselves against this strain. Opponents of Covid vaccinations accuse government and health officials like the Biden administration for exacerbating concerns over the virus. Lockdowns, other home-based quarantines and forced remote learning for school children have all been cited as the main political issues surrounding the pandemic that lasted two years.

Expect the stand-offs to continue for at least another year.

In gold’s case, how long it will ride the inflation wave higher before succumbing to the chokehold of a tightening Federal Reserve remains to be seen.

While bullion has certainly demonstrated a greater showing as an inflation hedge in the latter half of the year, gold bears remain in the shadows, ready to pounce once the dollar’s rally, or the reemergence of a Treasury bill spike, become too much to ignore.

Gold’s hold above $1,800 looks tenuous, though it also could break new ground into $1,900 and above. In the next week, keep your seatbelts on.

Oil Market Activity & Price Roundup

After a session high at $74.97 and a low of $72.65, the London-traded oil benchmark settled lower at $72.98/barrel, down over $2.00 (or more than 2%). Brent dropped 3.3% over the course of the week. After losing 18% in six weeks, the global crude benchmark rose 7.5% last week. It had fallen to $65.80 after a seven-year-high of $86.70 mid-October.

The benchmark U.S. crude oil price, WTI, fell $2.08 or nearly 3% to $70.30 per barrel after fluctuating between $72.25 (session peak) and $69.94 (session low). Week-to-date, WTI was down 1.1% after last week’s outsized gain of 8.2%. Prior to that, U.S. crude had been down for six weeks back-to-back, losing 20% in all and falling to as low as $62.48 from this year’s peak of $85.41.

WTI Technical Outlook

Sunil Kumar Dixit (chief technical strategist, skcharting.com) has the following to say about WTI for the week ahead:

The price movement during the week was bearish for WTI. It failed to move above $73.90 in the Bollinger Band despite positive Stochastic crossovers.

U.S. crude will retest its 50-week Exponential moving average of $67.50 over the next week, before it attempts a $73.90 test.

A move below $67.50 could increase bearish pressures up to $61.60, the 100-month Simple moving average of $59.65, and the 50 month EMA at $58.15.

It is important to remember that any break below $59 can turn the mid-term outlook from bearish to bullish.”

Gold Market Activity & Price Roundup

Gold is now back at the psychological bullish mark just a month after it lost its $1,800 status, strengthening its role as inflation hedge.

U.S. gold futures’ most active contract, , settled Thursday’s trade up $6.70, or 0.4%, at $1,804.90 an ounce on New York‘s Comex. It closed at $1,800 the last time on Nov. 22.

The weekly price of February gold increased 1.1% for the week. It was its highest level since early November.

Gold’s ascension came as the Federal Reserve announced its heightened concerns about inflation in the United States on a week that the central bank laid out an expedited pathway to ending its pandemic-era stimulus and raising interest rates for the first time since the Covid-19 outbreak of March 2020.

“Gold is taking the news that central banks are tightening monetary policy and tackling inflation head-on very well,” said Craig Erlam, analyst at online trading platform OANDA. 

“You would be forgiven for thinking this would be a negative development for the yellow metal and, in the longer term, I expect it will be. But it’s also a development that was almost entirely expected and priced in.”

Gold is almost always affected by news of rate increases. Bullion traders seem to have their eyes on U.S. inflation, so gold can continue to serve its original role as an insurance against it, even though strong Fed action could be a negative for the yellow-colored metal.

CPI (U.S.) rose 6.8% from the previous year, as reported by the Labor Department last week. It was also up at the highest rate since 1982. In November, the U.S. saw a 9.6% increase in year-over-year growth.

Technical Outlook: Gold

Dixit claims the following about the:

Gold broke above its swing lows, $1,761 & $1,758, followed by a spike down to $1.753. It then showed its determination to resist bearish pressures. The gold price surged violently past a series of resistances at $1.775-$1,785 -$1,798 before settling at $1.814 for the week (a little over the 50% Fibonacci level).

The stochastic reading at 25/30 remains bearish. However, the Relative Strength Indicator is beginning to point north. This indicates further gains for the week.

The new week will see gold retrace towards $1,785-1,775 before extending its rally to $1.825, which represents a 38.2% Fibonacci levels, and testing the $1,833 horizontal resistance. These may turn the stochastic/RSI to the north.

* Note: I will be out the next two weeks and the Weekly Review and Outlook on Energy & Precious Metals will resume publication on January 9. All the best for the new year.

Disclaimer: Barani Krishnan does not hold a position in the commodities and securities he writes about.