Oil Prices Drop, Gold And Silver Receive A Lift

Oil falls on Covid-19 fears

Covid-19 fears have spooked oil markets today, delivering a harsh dose of reality that even with vaccines arriving, Q1 2021 will not be a linear progression to economic recovery nirvana. With the speculative market limit-long, oil markets were primed for a high sulphur content corrective move lower, and that appears to be what has unfolded this morning.

Brent crude has fallen 3.10% to USD50.70 a barrel, and WTI has declined 2.55% to USD47.80 a barrel. I note that both contracts are already of their lows for the day, and this morning’s fall has moved the relative strength indexes (RSI) on both out of the overbought territory. That implies that positioning has moved back to a more balanced tone.

The massive squeeze in short-term natural gas prices, along with the ensuing rise for heating coal, should limit losses on oil. Asian demand as winter arrives, has seen a massive spike in LNG prices. A fall through USD50.00 a barrel by Brent crude could see the correction deepen. But only a loss of USD47.00 a barrel will suggest the longer-term uptrend has run its course. WTI could see more losses through USD47.00 a barrel, but its line in the sand remains far distant at USD44.00 a barrel.

Defensive rotation lifts gold and silver

With haven buying the day’s theme on mutating Covid-19 concerns, both gold and silver have staged impressive rallies this morning. XAU/USD has risen 0.85% to USD1897.35, just shy of resistance atUSD1900.00 an ounce. Silver has leapt 3.30% to USD26.6560 an ounce. That has left the gold/silver (mint) ratio at intriguing levels.

The mint ratio today has fallen through support around 71.35 to 71.15. A daily close at these levels or lower would be a bullish development for precious metals, suggesting further falls and that silver will lead anther spike higher in precious metals prices. One caveat is that today’s rally has left silver’s RSI in overbought territory, and the mint ratio slightly oversold. That implies that today’s gains at these levels for gold and silver may require a period of consolidation for the rest of the session.

Gold itself has resistance at USD1900.00 an ounce, which is more psychological than technical. More importantly, the 100-day moving average (DMA) lies just above at USD1904.70 an ounce. A daily close above that would be a positive technical development, opening the road ahead to further gains to USD1970.00 an ounce over the holiday period.

Both gold and silver are likely to find plenty of willing buyers on dips today in this defensive environment. Gold has support at USD1875.00 an ounce, and silver has support at USD26.0000 an ounce.

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