Oil extends gains, gold rises above 1850

Oil shrugs off demand downgrades

The IEA joined OPEC in downgrading their Q1 2020 consumption forecasts overnight. But it mattered not as US stimulus hopes, and the imminent approval of the Moderna Covid-19 vaccine stoked the recovery fires. Brent crude rose 0.85% to USD50.70 a barrel, and WTI rose 1.30% to USD47.50 a barrel.

Although oil is unchanged in Asia, both the Republican House and Senate leaders have this morning stated that talks are making progress and are confident of an agreement. That should underpin prices for the Asian session. Going into the FOMC, there is potential for a less dovish Fed to cause a downward correction, but losses are likely to be limited. The vaccine-led global recovery and US fiscal packages remain oil’s key drivers.

Both Brent crude and WTI are testing their December highs today. A rally by Brent crude through USD51.00 a barrel targets additional gains to USD53.65 a barrel in the days ahead. Only a loss of medium-term support at USD47.00 a barrel calls the rally into question.

WTI is just below monthly resistance at USD47.70 a barrel today. A move higher targets USD48.60 a barrel initially, followed by USD50.00 a barrel and possibly extending to USD53.00 a barrel by the year’s end. Only a loss of medium-term support at USD44.00 a barrel would signal the rally is over for now.

FOMC expectations propel gold higher

Gold staged an impressive 1.45% rally overnight, rising USD26.00 to USD1853.50 an ounce. A weaker US dollar, strong equities, and expectations that the FOMC will act to cap the rise in longer-term US interest rates, all combined to awaken gold from its range trading slumber of the past week. In Asia, gold continues to grind higher, rising 0.20% to USD1857.30 an ounce.

Although the stars appear aligned for more gold price gains, the FOMC does present a substantial risk. If the FOMC is less dovish, and more importantly, signals that it is comfortable with continued rises in US longer-term interest rates, gold could suffer a tough day at the office. More so if that also sparks a US dollar rally and a Nasdaq sell-off. Gold has yet to demonstrate its resilience to downward moves by the Nasdaq in particular.

Any correction lower should be limited to the 200-day moving average at USD1812.00 an ounce, with gold having traced a structural, technical low at USD1760.00 an ounce earlier in the month. Only the loss of the latter level calls into question the medium-term bullish outlook. Gold has resistance at the 50-DMA at USD1872.00 an ounce, followed closely by USD1875.00 an ounce. A daily close above the latter sets gold up for more gains to the 100-DMA at USD1907.00 an ounce initially.

Although gold’s price action is firm in Asia today, further gains will be limited through the session and into Europe, as the street awaits the FOMC meeting outcome.

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