Elusive stimulus sends oil and gold lower

Oil markets whipsawed again

Nobody can complain about a lack of volatility in oil markets this week, as oil endured another outsized whipsaw session overnight, for the third day in a row. Oil prices fell sharply, undoing all of the previous day’s gains, finishing at the lows of their one-week ranges. Brent crude fell 3.30% to USD40.70 a barrel and WTI fell by 3.40% to USD38.55 a barrel.

The chief culprit appears to be a lack of a new US stimulus package, reflecting the disappointment seen in other asset classes. Oil’s upside was always likely to be limited, as fears rise about the global consumption picture and from rising OPEC+ production. A strong US dollar today, driven by risk-aversion sentiment, has put further pressure on oil prices in a holiday-thinned Asian market. Brent has fallen by 0.70% to USD4.50 a barrel, and WTI has fallen 0.90% to USD38.20 a barrel. Trump’s quarantine is adding another negative note to a sombre mood.

Brent crude has support at its overnight low at USD40.00 a barrel, with resistance at its 100-day moving average (DMA) at USD41.95 a barrel. WTI has support at USD37.65 a barrel, its overnight low. Resistance appears initially at its 100 and 200-DMA’s at USD39.15 and USD39.45 a barrel. The harsh reality of oil’s global supply/demand equation keeps capping any consistent rallies, and as such, the dangers are increasing that another downward leg for prices is soon to arrive.

Gold retreats in Asia

Gold managed to ride a weaker US dollar to a 1.10% gain to USD1906.00 an ounce overnight. Those gains have been almost completely reversed in Asia as the US dollar has strengthened yet again. Gold has fallen 0.60% to USD1894.50 in Asia today.

The price action highlights that gold’s movements at the moment are not being driven by gold itself. Instead, the real story is a US dollar one, and as such, investors should be watching the US dollar index for short-term clues to gold’s direction. Looking at the bigger picture, though, gold has risen consistently, albeit in a choppy manner, over the past week. Setting the day-to-day noise aside, the technical picture looks positive, suggesting that further gains are possible next week, assuming the Non-Farm Payrolls data passes without incident.

Gold has interim support at USD1875.00 an ounce, with strong support at its 100-DMA at USD1850.00 an ounce. Resistance lies at USD1912.50, the overnight high, followed by USD1920.00 an ounce.