Oil rallies on Zeta, gold range trades

Zeta grants oil a temporary respite

Oil prices rallied overnight as Hurricane Zeta headed towards the US Gulf oil production states. Zeta is not nearly as powerful as Epsilon before it, and production disruptions will be temporary. Brent crude spiked through USD41.00 a barrel, but faded quickly, finishing only 0.60% higher at USD40.70 a barrel. Similarly, WTI spiked higher, but failed ahead of USD40.00 a barrel, finishing the day 1.0% higher at $39.00 a barrel.

Asia has quickly unwound the temporary Zeta-spike today, Brent fading 0.30% to USD40.55 a barrel, and WTI easing 0.45% to USD38.75 a barrel. The rise in US API Crude Inventories to 4.6 million barrels has not gone unnoticed by Asia, and Covid-19 rampage across Europe and the US is a material threat to the demand side of oil’s equation.

Brent failed to hold above its 200-day moving average (DMA) at USD41.00 overnight, and this becomes initial resistance, followed by USD41.50 a barrel, the overnight high and previous multi-day lows. Support lies at USD41.25 a barrel, with a failure opening deeper losses to USD39.00 a barrel.

WTI has resistance at the previous week’s lows, and the overnight highs, around USD39.75 a barrel. After that, the 50 and 100-DMA’s at USD40.20 and USD40.30 a barrel present formidable resistance. Monday’s low at USD38.30 is initial support, followed by the 200-DMA at USD37.35 a barrel.

Whichever way you cut it; it is hard to construct a bullish case for oil at the moment. Once the Zeta premium has passed, oil is likely to continue to supply, and this week, rallies are likely to be there to sell.

Gold’s range continues to compress

The range compression continues in gold, with gold trading in a USD1898.00 to USD1910.00 an ounce range overnight. That leaves gold tucked up still in an ever-narrowing symmetrical triangle that suggests a very large breakout is about to occur, possibly targetting a USD100 an ounce move.

Gold is almost unchanged at USD1908.00 an ounce in moribund Asian trading. With the Covid-19 risks increasing by the day, notably in Europe, and unwinding of pre-election bullish trades in other markets, the odds favour a break higher. The view is though that pre-election risk hedging will benefit gold.

The boundaries of the triangle are at USD1899.00 and USD1922.50 an ounce today. A concerted daily close above or below those points signalling the long-awaited breakout is upon us. The 100-DMA at USD1887.00 an ounce will provide interim support. Like a first Tinder date, I remain nervously bullish, while simultaneously preparing to have my heart broken.