Oil dips on OPEC forecasts, gold moves up

Oil drops in Asia on OPEC forecasts

OPEC cut its demand forecast for Q1 this morning, as Covid-19’s rampage through the US and Europe threatens demand in the near-term. That has seen both Brent crude and WTI fall by 0.70% this morning to USD49.95 and 46.70 a barrel, respectively. That unwound all the gains that both contracts made overnight, leaving them virtually unchanged for the week so far.

The OPEC forecast’s effect is likely to be transitory, and in the scale of the broader rally of the past month is minuscule in scope. Like currency markets, oil markets have spent the last week range-trading and consolidating recent gains. Falling oil stocks in storage, and a much brighter economic outlook for 2021 set against an easy monetary policy world will continue to support prices and lead to further gains.

Brent crude is content to range between USD49.00 and USD51.00 a barrel, and only a fall through USD47.00 a barrel jeopardises the bullish outlook. Similarly, WTI ranges between USD46.00 and USD48.00 a barrel, and only a fall through USD44.00 a barrel changes the underlying bullish scenario. Both are likely to continue trading in a choppy range ahead of the FOMC or a US stimulus breakthrough. Both are likely to be supportive of prices.

Gold rises on risk hedging

Gold has climbed by 0.40% to USD1835.00 an ounce this morning, unwinding most of the fall it suffered in the overnight session. Investors in Asia appear to be hedging against the loss of momentum on equities, the FOMC, and a lack of progress in US stimulus negotiations. The net result is that gold continues to consolidate between USD1820.00 and USD1850.00 an ounce.

The FOMC is expected to be dovish, although perhaps not as much as the market had initially been hoped for, given the lack of fiscal stimulus negotiations. Any movement by the FOMC, either in action or intent to cap the rise in longer-term US yields, should be positive for gold prices. Nevertheless, the sideways trading of the past week has left gold open to a deeper correction to wash out stale longs. Gold has also shown itself to be unable to decorrelate from gloomy days by the Nasdaq index, in particular.

Gold has support at USD1820.00 an ounce, followed by the 200-day moving average at USD1811.00, and then USD1800.00 an ounce. Resistance lies at USD1850.00 and USD1875.00 an ounce. As previously stated, I believe that gold traced out a structural low at USD1760.00 an ounce, and only a daily close below that suggests a deeper correction to the USD1700.00 an ounce region.

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