Crude prices gain ground, gold drifting

Oil prices sense reality in Asia

Oil prices also endured a volatile session, but a weaker US dollar ensured that both Brent and WTI finished the overnight session with impressive gains. Brent crude rose through its 200-day moving average (DMA) at USD40.30 a barrel, on its way to a 2.75% gain to USD41.20 a barrel. WTI rose 2.65% to USD39.10 a barrel, just shy of its 50-DMA at USD39.60 a barrel. An unexpected 8.0 million-barrel fall in US Crude Inventories also helped the rally along nicely, although I suspect some may be hurricane-induced disruptions.

Notably, the relative strength indexes (RSI) of both contracts remain in neutral territory, suggesting that fast money momentum has plenty of room to drive prices higher yet. Despite noises from Russia and Saudi Arabia about doing whatever is needed to ensure price stability, the reality is that with Europe in Covid-19 lockdown, the consumption supply equation has swung negatively. A Biden presidency may also extend an olive branch to Iran, potentially adding to global supply.

That seems to be Asia’s concern this morning, with both Brent crude and WTI 1.25% lower to USD40.65 and USD38.60 a barrel respectively. If the Biden victory materialises as anticipated, I would expect this theme to gain more traction. Therefore, some caution is warranted about oil prices at these levels. Intrinsically, nothing has changed about the challenging supply-demand picture, and if anything, the threat of more supply has increased.

Further US dollar weakness may support oil prices, but I suspect we have seen the best of oil’s rally for now. Structural gains will need to be driven by OPEC+.

Gold has yet to catch a dollar tailwind

Gold traded between USD1880.00 and USD1920.00 an ounce overnight, but as the dust settled, still finished down 0.35% at USD1903.00 an ounce. Although gold recaptured the 100-DMA at USD1896.00 an ounce, it failed again to break the apex of the triangle formation at USD1913.60 an ounce.

The latter is a point of some concern, significantly as the US dollar weakened elsewhere, US bond yields fell, and equities rallied. In combination, that suggests that dangers persist for another downward spike in gold prices, to wash out stale long positioning.

Gold is almost unchanged at USD1906.00 an ounce in Asia, with resistance at USD1913.60 and then USD1917.00 an ounce, followed by USD1933.00 an ounce. The 100-DMA, today at USD1896.70 an ounce is an intra-day pivot, followed by USD1880.00 an ounce.

Although I have stated that the weak US dollar trade is back and that the Federal Reserve will inevitably increase monetary easing in December, the performance of gold this week has been disappointing. Fundamentally, the stars are aligning for much higher gold prices in 2021. It may well be though, that gold trades at USD1800.00 an ounce before it retests USD2000.00 an ounce on onwards.