Downside risks building for oil and gold

Oil swimming against the tide

The rebound in risk appetite today is lifting oil prices a little but it’s already faces stiff resistance.

A rally in oil may feel like swimming against the tide in the near-term, with rising Covid cases and restrictions likely to weigh on economic activity and therefore demand. Barring another intervention from OPEC+, which is looking increasingly likely at some point, the path of least resistance is downward.

And with the dollar shaking off the remaining bears and hitting two months highs, the headwinds are only growing.

Gold facing significant downside

The near-term outlook for gold is looking worse by the day, with the yellow metal breaking $1,900 just as the dollar hits a two month high, taking out key resistance along the way.

The bear-case for the yellow metal has been building for some time, with the dollar threatening a correction but just failing to gain the momentum at the right time. Now that it appears to have gathered that support, gold could retreat much further, with $1,860 the next test but $1,800 perfectly feasible.

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