Gold and oil beat a hasty retreat

Covid-19 torpedoes oil prices

The new lockdowns in German and France and the spiralling case numbers of Covid-19 cases in the US torpedoed oil prices below the waterline overnight. Concerns about the consumption outlook and an unexpected jump in official US crude inventories saw Brent crude fall 4.15% to USD39.00 a barrel. WTI fell by 4.10% to USD37.35 a barrel.

The stabilisation of equity markets in Asia has provided a brief respite for oil today, with both contracts edging 15 cents higher this morning. The consumption risks in Europe especially, and the technical picture on both contracts, makes for grim reading today still.

Brent crude failed to recapture its 200-DMA at USD40.90 a barrel overnight and now sits just above monthly support between USD38.75 and USD39.00 a barrel. Further losses to USD37.00 a barrel beckon if that support zone fails.

WTI has resistance at its overnight high of USD39.00 a barrel but sits just above its 200-DMA at USD37.25 a barrel today. Minor support is at USD36.70 and USD36.15 a barrel. After which the charts show nothing but clear air until USD34.00 a barrel.

From here, oil needs some good news in the form of a US stimulus breakthrough, or some verbal support from OPEC+ to stop the rot. The picture is clouded by the impending 2 million barrels per day production increases by OPEC+ scheduled for January. OPEC+ is likely though, to try and ride out the US election storm, with only a fall by Brent crude through USD35.00 a barrel likely to elicit an early response. For now, oil markets look like sells on rallies.

Gold and silver fail to shake off the stock-market correlation

They say, “this time it’s different,” but bitter experience teaches that it rarely is. Such was the case for precious metals overnight, with the equity market correlation back in full force. As equity markets headed south quickly, strong selling emerged in gold and silver. Gold finishing 1.60% lower at USD1877.25 an ounce, with silver falling over 4.0% to USD23.3800 an ounce.

The fall may be attributed as much to the market being long already, in anticipation of further safe-haven buying, as to the equity market fall. Nevertheless, the fact remains that precious metals cannot shake off the correlation when the sell flag gets hoisted over stock markets. Gold has broken out of its symmetrical triangle to the downside, with the same pattern repeated on silver.

Gold has also fallen through its 100-DMA at USD1888.00 an ounce, another bearish indicator. The triangle suggests that gold could fall as far as USD1800.00 an ounce with interim support at USD1850.00 an ounce. Resistance being the 100-DMA and the base of the triangle at USD1903.00 an ounce.

Gold has risen a modest 0.30% to USD1883.00 an ounce in Asia as stock markets have stabilised, but the rally looks fragile. Like oil, gold likely needs some good news on the US stimulus front lifting equities to stop the rot, with the market still looking long and wrong. Gold watchers should perhaps take their cues from silver, whose breakout lower is much more apparent.

Of course, readers yesterday, who took my bullish outlook yesterday as a reverse leading indicator signal (and I don’t blame you), likely enjoyed a pleasing night. The pleasure was all mine, I’m glad I was of help!

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