Oil slide continues, gold rallies

Oil’s woes continue

Oil prices were crushed again overnight, as Covid-19-induced consumption uncertainty, and the risk of the US elections combined to send oil prices sharply lower again. Brent crude fell 3.75% to USD7.55 a barrel, and WTI fell 3.40% to USD36.10 a barrel.

With a European slowdown jeopardising global consumption and the return of Libyan production, the onus must now fall on OPEC+ to reconsider their 2 million barrel per day production increases in January. The grouping is holding its nerve, for now, hoping that the volatility of the next week can pass without incident, but I suspect that a fall by Brent crude through USD35.00 barrel will force its hand. Oil is unlikely to sustain any rally in this environment short of a statement from OPEC+.

Brent and WTI have edged 25 cents a barrel higher in Asia on profit-taking, but it looks like a dead cat bounce at this stage. The pace of declines may slow though as both contracts relative strength indexes head towards oversold territory. The overnight lows at USD36.65 and USD35.00 a barrel respectively, form the last line of support for both contracts. Any rallies from here look to be rallies to sell into, as we head into next week.

Gold rallies in Asia

Having broken triangle support on Wednesday, gold ominously refused to rally higher with equities overnight. However, in Asia today both gold and silver have moved higher, suggesting that haven buyers are emerging ahead of the weekend.

Gold fell 0.50% to USD1868.00 an ounce overnight, as the US dollar and Treasury yields firmed. But today, gold has recouped all those losses, rising 0.50% to USD1877.00 an ounce this morning. Silver is also outperforming, rising 1.20% to USD23.5350 an ounce.

Gold has resistance at its 100-DMA, today at USD1889.60 an ounce, followed by the triangle base at USD1905.00 an ounce. Initial support is at USD1860.00 an ounce, the overnight low, followed by USD1850.00 an ounce.

Haven buying is expected to increase in the coming days. Although it looks like it won’t be enough to sustain a rally back over USD1900.00 an ounce, it should be enough to at least temporarily stop the rot until the US election passes.

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