Oil hits the canvas in early Asia
Oil prices eased slightly on Friday, finishing a torrid week. The rise in Covid-19 infection in the US and the slew of new national lockdowns in Europe over the weekend sent prices to the canvas in Asia today. With consumption levels rapidly revised lower, both Brent crude and WTI fell over 5.0% at the open.
Both have recovered slightly since, but Brent crude is still down 3.0% at USD36.75 a barrel. WTI is down 3.50% to USD34.50 a barrel. The session’s low of USD35.80 a barrel is initial support for Brent crude, with a failure throwing the door open to a sub-USD35.00 a barrel move. Resistance is distant at USD39.00 a barrel. WTI has support at USD33.70 a barrel, the session low. After that, the road is open until USD32.00 a barrel. Resistance is distant at USD36.00 a barrel.
With such a potentially volatile week ahead, I expect OPEC+ to try and sit out the noise and hold their nerves. However, if Brent crude is under USD35.00 a barrel this time next week, some sort of action from the grouping will be inevitable. Europe’s lockdowns have torpedoed the consumption side of the supply/demand equation. Only oversold relative strength indexes (RSI) on both contracts provide any reason to suggest the pace of losses may slow from here.
Gold and silver finally find support
Throughout last week, precious metals were unable to shrug off the correlation to falling equity markets, frustrating investors looking to hedge risk by buying gold. Despite US Treasury yields firming on Friday, gold still managed to rise by 0.60% to USD1879.00 an ounce.
A positive start to the week by Asian equities has continued gold’s modest comeback, rising 0.10% to USD1882.00 an ounce, while silver has risen 1.25% to USD23.9400 an ounce. Gold still faces challenges, having fallen through the bottom of its triangle formation last week. Gold has immediate resistance at its 100-DMA, today at USD1891.00 an ounce, followed by USD1909.00 an ounce. Support is at USD1860.00 and USD1840.00 an ounce.
Despite the solidity shown by gold, it is too early to say that the recent fall has run its course. More falls in equity markets such as we saw last week, may well lead to following selling in gold. A failure of USD1840.00 an ounce opens up more losses to USD1800.00 an ounce, my target for the original technical break.
Nagging doubts aside though, the event risk of the next 40-hours suggests that there should be plenty of dip buyers looking to hedge portfolios elsewhere. Gold may struggle to rally, but nor should it collapse in a disorderly manner either, even if conditions are trying elsewhere.