Gold collapses, oil shows small gains

Hurricane Delta holds up oil

Oil markets were having another heady session until hitting a brick wall when President Trump called off stimulus talks. Oil abruptly reversed course, but both Brent and WTI still managed to finish the day marginally in the green. The main reason for their outperformance is Hurricane Delta, which is gathering strength in the Caribbean and expected to make landfall in the southern US on Friday. For once a hurricane did not cause extensive damage, and it is likely to continue supporting prices into the week’s end. That premium could quickly disappear though if it passes without inflicting extensive damage on US oil infrastructure.

Brent crude finished the day 0.95% higher at USD41.90 a barrel, having traded as high as its 200-DMA at USD42.80 a barrel intra-session. It now forms daily resistance with support at the overnight low at USD41.25 a barrel. WTI closed 1.10% higher at USD39.80 a barrel, having traded as high as USD40.85, its 50-DMA earlier in the session. That is now resistance with support at USD39.15, followed by its 200-DMA at USD38.80 a barrel. Notably, WTI closed just above its 100-DMA at 39.65 a barrel, and this will be an intra-day pivot point today.

With China away, oil markets in Asia are moribund and unchanged. WTI is likely to outperform Brent crude due to the impending arrival of Hurricane Delta. The hurricane should limit any losses on WTI. However, the consumption picture without a US stimulus package means that any gains by either contract will be much harder to find going forward.

Gold collapses with equities

Gold collapsed overnight after President Trump ended stimulus talks. Gold fell 1.85% to USD1878.00 an ounce as its direct correlation to aggressive falls in US equity markets reasserted itself. Gold was not helped by US treasuries continuing to hold onto most of their recent rises in yields. That development over the past few weeks is also sapping upward momentum for gold even without the Trump surprises.

It appears that for now, gold is unable to detach itself from equity markets heading lower as they trend down firmly, and the lack of safe-haven support is disappointing. It also means that assuming US yields stay elevated, any further selloffs in US equities are also likely to push gold lower.

Gold’s overnight fall leaves it boxed mid-range between support at its 100-DMA at USD1858.70 an ounce, and trendline resistance, and its 50-DMA, both at USD1941.00 an ounce. Gold has a double bottom at USD1848.50 an ounce, which is critical support. A daily close below suggests a deeper correction below USD1800.00 an ounce is likely.