Oil edges lower, gold breakout brewing

Oil edges lower in Asia

Oil markets edged lower in New York on Friday, weighed down by double-dip recession fears, in an otherwise orderly session. Notably, the respective 100-day moving averages (DMA) on both contracts contained intra-session selloffs. Brent crude fell 0.45% to USD42.90 a barrel, and WTI eased 0.25% to USD40.70 a barrel, leaving both contracts mid-range.

In Asia today, hopes of US stimulus talk breakthroughs have been ignored by oil markets, as has the positive China data. Both contracts have eased by 15 cents a barrel in quiet trading. Officials from OPEC+ are conducting their monthly review process today, and Asia seems content to await that outcome. The recent recovery by both contracts, with the sell-off in hindsight looking overdone, will take the pressure of OPEC+ to increase production cuts again. That is likely to be a modest negative for oil.

In the bigger picture, the main threat to oil prices at this stage is a demand drop caused by Covid-19 restrictions leading to a severe double-dip recession in Europe. The second threat being a general rush into US dollars as investors decide to hedge US election risks finally.

Brent crude has resistance at USD43.50 a barrel and then USD44.00 a barrel. It has support at USD42.65 initially, its 100-DMA. Its 200-DMA follows that at USD41.70 a barrel, and then a triple bottom at USD41.40 a barrel. WTI has strong resistance at USD41.50 a barrel, with nearby support at USD40.20 a barrel, its 100-DMA. That is followed by a series of daily lows around USD39.10 a barrel.

Gold continues to range, but a breakout is coming

US stimulus hopes saw gold retreat 0.50% to USD1899.50 an ounce on Friday, where it remains unchanged today in Asia. However, gold continues to compress in ever-decreasing ranges, part of a broader three-month triangle pattern, suggesting that a breakout is imminent.

Which way the breakout will occur seems likely to be determined by the US stimulus negotiations and the likely outcome of the US election. Given the market is pricing in both a package and a Democrat clean sweep that would suggest a lower level for gold. However, I suspect that things are not so simple, and I feel the risks are evenly balanced for haven-derived buying ahead of the US elections to push gold higher potentially. Along with the US dollar, gold should be another beneficiary of investor risk hedging as November 3rd gets closer.

The base of the triangle is at USD1889.00 an ounce today, followed by support at USD1873.00 an ounce, its 100-DMA. The top of the triangle is at USD1923.00 an ounce today, also coincidentally, the 50-DMA. From a technical perspective, a triangle breakout suggests gold will target a USD100+ per ounce move.

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