Oil, gold rise on Trump homecoming

Oil prices explode higher

Oil prices raced higher overnight, as a combination of tailwinds combined to lift prices of the bottom of their one-month ranges. The return of the president to the White House created a general rally in asset markets. Oil received additional help from a widening strike by oil workers in Norway, and the start of evacuations from oil platforms in the Gulf of Mexico ahead of the expected arrival of Hurricane Delta.

Brent crude prices leapt 6.15% to USD41.55 a barrel, leaving it just shy of resistance at its 100-day moving average (DMA) at USD42.05 a barrel. WTI reclaimed its 200-DMA at USD39.00 a barrel, on the way to an impressive 6.30% gain to USD39.35 a barrel. It now lies just below resistance at its 100-DMA at USD39.55 a barrel.

Of the two contracts, WTI probably has the most upside potential from here, with Hurricane Delta potentially being the most disruptive hurricane yet of a busy season. It is still located south of Cuba and its evolution will dictate if WTI can test longer-term resistance around USD42.00.

Even if oil prices do continue to rally this week, I would caution about getting sucked into a false dawn. Extraneous factors are lifting oil prices with nothing structurally changed on the supply/demand equation for global markets. If anything, the risks here have increased as governments across Europe and the UK rachet up Covid-19 restrictions. If Hurricane Delta peters out, the Norwegians go back to work, or the US president takes a turn for the worse, all the reasons for oil’s rally could disappear as fast as they began. Being long Brent near USD44.00 a barrel, or WTI near USD42.00 a barrel is likely to be a painful trade. That said, for nimble traders, they are possible; just don’t fall in love with your position there.

Asian markets are quiet with mainland China away and caution around potential negative headlines from the White House.

Risk-on sentiment lifts gold

The return of the US president to the White House and US fiscal stimulus hopes sparked a general rally across asset markets overnight. Notably, gold ignored firmer US yields, and tracked equity markets higher, rising strongly by 0.75% to USD1913.50 an ounce in New York. In line with other markets, Asian traders have adopted a cautious stance today, with gold almost unchanged this morning. Volumes in Asia are also adversely affected by the absence of mainland China, which is on holiday until Friday.

Gold’s rise is notable for the fact it occurred with longer-dated US treasury yields also rising, although a weaker US dollar was supportive. It suggests that some momentum may be returning to the long gold trade, after an extended period of choppy range-trading. It is also a note of caution. If US yields keep rising, gold may struggle to consolidate further gains; investors should be keeping a close eye on the US bond market.

Gold has support at USD1880.00 an ounce, which has held every pull-back for the past week. Above, gold has initial resistance at USD1920.00 an ounce. More significant resistance appears at USD1943.00 an ounce, which is a descending trend-line and also the 50-day moving average.