Oil finally breaks its ranges
The move higher in oil has come somewhat sooner than expected, but arrive it has. Vaccine hopes, EU stimulus agreements and a much weaker US dollar finally lifted oil through some critical resistance zones, ending nearly two months of range trading.
Brent crude rose through USD44.00 a barrel, filling its chart gap by rallying to USD44.90 a barrel, before finishing the day 1.80% higher at USD44.10 a barrel. WTI broke through USD44.50 a barrel, on the way to a USD42.50 high, before easing lower to finish the session 1.90% higher at USD41.60 a barrel. Both contracts have edged higher today by a non-descript 0.20% as energy markets pause for breath in Asia.
The previous resistance on both contracts now becomes pivot points. As long as Brent and WTI hold on a daily closing basis above USD44.00 and USD41.50 a barrel respectively, the rally should continue. Brent can potentially target its 200-DMA at USD48.10 a barrel. WTI’s 200-DMA at USD43.40 a barrel, remains its initial target.
A weaker US dollar should continue to support oil pricing going forward. The significant risk factors lie with the United States. Will the pandemic force mass movement restrictions across much of the country? Can Washington DC create a new fiscal stimulus package in a compressed timeframe? Both risk factors could severely impact consumption and confidence, knee-capping oil’s rally. It is too soon though, to conclude either.
Gold follows the silver surfer to new highs
Silver led the way again in Asia today. Rallying 7.0% on thin air in early trade, dragging gold higher on its coattails. That capped an impressive 24 hours of price action from both metals. Silver is now 12.0% higher over two days, and a breath-taking around 90% higher than its mid-March sell-off lows.
There is little to explain the scale of the silver rally of the past three sessions. Liquidity and some large short covering are undoubtedly playing its part. Its dual precious metal and industrial metal status make it a prime candidate for a global recovery trade. One suspects that plenty of short-term FOMO money has suddenly discovered silver as well. In hindsight, silver has led stock markets, energy and commodities higher since mid-March. Logically, until silver has a severe setback, momentum is unlikely to waver in those asset classes either.
Silver’s next technical target is USD25.00 an ounce. With silver racing higher and closing at its highs for three consecutive sessions, it would be a brave man who picked the top there.
Gold, meanwhile, has also had a busy couple of sessions. Gold broke resistance at USD1819.00, on its way to a gain of 1.35% overnight, closing near its highs at USD1842.00 an ounce. With silver jumping 7.0% this morning, gold has followed suit, rising 0.80% to USD1456.80 an ounce, having toughed USD1866.00 an ounce earlier in the session.
Momentum remains secure with gold, likely pent up after narrow range-trading for much of July. Today’s high at USD1866.00 an ounce form initial resistance. The all-time high at USD1920.00 is now within reach though, and a test seems likely assuming the global recovery remains uninterrupted across financial markets. Gold would need to record a daily close below USD1819.00 an ounce to call into doubt the bullish thesis.