The biggest short-term risk to gold remains the emergence of a workable and widely distributed vaccine, together with a sharp correction in stocks leading to gold liquidation from investors in order to raise cash in hurry.
Having found support earlier in the week at $1900/oz, the market is still in range-bound mode with $2015/oz the big level that needs to break in order to attract fresh technical buying that could trigger a resumption of the rally.
Crude oil remains range-bound following another hurricane scare that briefly saw the market test the upper bounds of the current range. Crude oil and gasoline both reached five-month highs as the focus temporarily moved from the pandemic impact on demand versus OPEC+ production cuts to the U.S. Gulf coast. At the end of the week, the sector could breathe a sigh of relief after the hurricane missed key energy assets, especially the world’s biggest concentration of refineries.
What now follows will be several weeks of disruption to imports and exports of oil, fuel and natural gas, as well as production and refining activity. These disruptions will be visible in the “Weekly Petroleum Status Report” published on Wednesdays by the U.S. Energy Information Administration.
WTI crude oil struggled to find a bid as production shut-ins from oil rigs in the Gulf of Mexico were more than off-set by lower demand from refineries and a halt to exports. It highlights, and in our opinion supports, the view that crude oil may struggle, at least in the short-term to rally much further. While fuel demand in the U.S. continues to recover, the pandemic is currently gathering momentum across Asia and Europe. And while renewed lockdowns are unlikely, the impact on fuel demand is being felt. At the same time, OPEC+ are struggling to reign in more than 2 million barrels/day from countries that have yet to reach agreed production targets.
A break below $43/b may increase the risk of long liquidation taking the price lower towards $41/b and potentially as low as $38.5/b, the July 30 low. As mentioned, the potential hurricane threat from two storms currently building in the Atlantic may, at this stage, limit the downside risk. Brent crude oil, meanwhile, has yet to break out of its narrowing range, currently defined to the downside by the 50-day moving average at $43.75/b and to the upside by the 200-day at $45.80/b.