Gold, oil gain ground on soft US dollar

Oil creeps higher

Oil markets were relatively quiet on Friday as US markets assessed the fallout from Hurricane Laura. Brent crude rose 0.50% to USD45.50 a barrel, with WTI rising just 0.10% to USD42.90 a barrel. A positive mode in Asia after the Chinese data has seen both contracts increase by 0.50% to USD46.10 and USD43.10, respectively.

Of the two, Brent crude looks the more intriguing, rising through its 200-DMA at USD45.80 a barrel this morning. A daily close at these levels would be a strong signal that a test of the August highs of USD47.25 a barrel is imminent. That would open up further gains to USD48.00 a barrel.

WTI meanwhile is somewhat less inspiring. Despite this morning’s gains, WTI remains shy of resistance at USD43.80 a barrel and remains mired in range-trading mode. A daily close above that level, however, does potentially open further gains, possibly as high as USD47.50. I would prefer to have the break confirmed though, as we have been disappointed at these levels multiple times in the past six weeks.

With a weaker US dollar in prospect, the outlook for oil prices is becoming increasingly positive, supported by a procession of improving data from around the world. That must be tempered though, by the contango in the Brent futures curve, signalling near-term supplies remain abundant, and the fragility of the global recovery itself. Oil is likely to slowly grind higher in modest steps, not explode out of the wellhead higher.

Gold reverses its losses

Gold recovered all its Federal Reserve losses with interest on Friday, rising 1.85% to USD1965.00 an ounce in another day of volatile trading. The realisation that US rates would be lower for longer, and that negative real yields would continue, overpowered fears of extreme long positioning.

Gold has risen 0.30% to USD1970.00 in Asia, just short of daily resistance at USD1977.00 an ounce. That would open further gains to the USD2000.00 an ounce region initially. Gold being what gold is these days, investors may prefer to wait for the break to be confirmed, rather than loading up at the top of the weekly range.

With US yields once again falling, and a weaker US dollar with more to come, the stars are aligning favourably once again for both gold and silver. The drivers of the precious metal ascent are now moving back into place. A test of the August highs around $2080.00 an ounce now seems almost inevitable.

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