Gold hits all-time high

Oil prices remain neutral, balanced by opposing forces

If the fireworks are exploding elsewhere, oil markets remain astonishingly quiet by their lofty standards. Friday’s session saw both contracts barely changed. Brent crude was unchanged at USD43.40 a barrel, and WTI crept 0.50% higher to USD41.50 a barrel. This morning, in directionless trading, both have slipped by 0.30%.

Oil appears to be caught between opposing forces, crushing price volatility and ranges. On one hand, the explosion of the Covid-19 pandemic in the US, and its re-emergence elsewhere, is casing worries that a renewed economic slowdown could torpedo demand. On the other hand, a much weaker US dollar, and positive data and fiscal stimulus news from the US, Asia and Europe are tentatively supporting prices. The net result is that not much is happening at all on the pricing front.

That state of affairs is unlikely to continue though. Brent’s price action, in particular, has been a disappointment. Having almost entirely closed its chart gap to USD45.00 a barrel, it now sits mid-range at USD43.20. Assuming the global recovery continues, oils should grind higher as consumption recovers. However, bullish oil traders may have to contend with a correction lower to thin the bullish herd first.

A break lower by Brent crude through USD41.50 a barrel, and through USD40.00 a barrel for WTI, implies a speculative culling of longs continues. I expect any drops to be short in duration though, with plenty of physical buyers lurking to scoop up black gold on price dips.

Gold makes new all-time highs as silver explodes higher

It has been all action in precious metals markets in Asia today. Gold has climbed USD30 an ounce, or 1.65%, to a new all-time high of USD1933.00 an ounce. Gold immediately passed go in early trade, climbing aggressively to USD1919.00 an ounce, with the market seemingly reaching for stop-losses around USD1920.30 an ounce, the previous record high for gold. Once that was cleared, we have jumped yet again as systematic and technical buyers have piled into new longs.

Negative real US yields, a much weaker US dollar and a good dose of FOMO sees gold’s momentum undiminished, even at these lofty heights. Now that the all-time high bugbear is out of the way, I expect gold’s momentum to accelerate once again. Gold’s next target is USD2000.00 an ounce.

I expect that gold will take a lot less time to reach USD2000.00 an ounce, than it did to move from USD1820.00 an ounce to USD1920.30 an ounce. The fact that gold has risen seven dollars an ounce since I started writing this paragraph, is testament to that.

Having consolidated its recent gains by ranging just under USD23.0000 an ounce over previous days, Silver has exploded higher today. Silver has jumped by 5.60% to USD24.0200 an ounce as I write. The XAU/XAG ratio falling nearly 4.0% to 80.36.

Liquidity plays its part in the extreme silver moves we have seen in recent times. Since mid-March, it has quietly below the radar, led stocks and other commodities higher. Silver’s dual precious metal and industrial use has finally caught investors’ eyes, and even at these levels, and with a good dose of fast FOMO money, silver still does not look overbought.

One clue to this fact is the XAU/XAG ratio which spiked to 129.00 during the mid-March capitulation. That has now corrected to around 80.00. It should be noted though, that this just brings the ratio back to around its average of the past two years, before March. In that context, silver’s exponential rally has only bought XAG/USD; therefore, back to the mean in gold terms.

Silver, therefore, can theoretically continue to rally from here in US dollar terms, but not become overbought in gold terms. Picking a top in XAG/USD is probably not a wise move, even at this price level. Silver’s next target is the August 2013 high around USD25.1200 an ounce, with a move above USD30.0000 an ounce entirely feasible if gold continues to track higher. Watch the XAU/XAG ration for silver’s next step, and not just price action on XAG/USD itself.

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