Gold and silver fall, oil prices collapse

Oil markets get a reality check

Oil prices collapsed overnight, as Hurricane Beta made landfall as a tropical storm. Libyan production returned to international markets, the US dollar rose, and Covid-19 worries clouded the future consumption picture. The hurricane premium built into the recent oil rally was brutally laid bare, with oil market fundamentals quickly reasserting themselves.

Brent crude fell 3.25% to USD41.65 a barrel, having been down over 4.0% intra-day. The only positive note was that support at USD41.00 a barrel, its 100-DMA, held perfectly. Resistance is now distant at USD44.00 a barrel. A failure of the 100-DMA opens up a test of the critical support region between USD39.30 and USD39.50 a barrel. A much deeper correction to USD36.00 a barrel could ensue if the latter gives way.

WTI fell back through its 200-DMA overnight, finishing the session 2.70% lower at USD39.80 a barrel as its weather premium evaporated. WTI fell as low at USD38.70 a barrel intra-day, during a torrid session, but managed to hold clear of support at its 100-DMA, today at USD38.40 a barrel. Should the 100-DMA fail, a return to the September lows just above USD36.00 a barrel seems inevitable.

Looking at the US hurricane centre’s website this morning, there appear to be no impending weather events in the Gulf of Mexico to add that risk premium back into prices. Both contracts have faded by 0.40% in Asia, following the rest of the markets lower. Without the benefit of wind-power, oils negative fundamentals look set to reassert themselves, even if other markets stage a recovery. OPEC+ may yet again receive a call to arms on production cuts.

Gold and silver get smelted

The curse of being a leading reverse indicator for gold prices struck the author again overnight. Having said yesterday that gold’s balance of probabilities lay high, both it and silver prices crumbled overnight. The correlation to large negative moves in equities seemingly back with a vengeance.

Gold fell USD68.00 to USD1882.50 an ounce at one stage, before rallying to still finish 1.95% lower at USD912.50 an ounce. Silver had an even more torrid day, falling USD2.50 to USD23.7000 an ounce, finishing the day down 7.70% at USD24.7185 an ounce.

Gold’s price action suggests that more than a few stop-losses were executed after support between USD1905.00 and USD1920.00 gave way. Also evident by gold’s recovery is that buyers emerge to snaffle up some bargains at those levels. Whether they remain bargains or not, is still to be seen. Silver markets may give a clue as silver’s bounce of its lows was feeble in comparison to gold. That elegantly allows me to side-step, making another reverse leading indicator call.

Gold has support at the overnight low at USD1882.50 an ounce, followed by the August spike to USD1863.00 an ounce, with the 100-DMA at USD1840.50 an ounce, not far behind. Gold, therefore, has quite a lot of wood to chop if it is to confirm a medium-term top is in place. On the topside, the overnight ranges mean that the nearest resistance is at its descending triangle line, today at USD1862.00 an ounce.