Gold and silver shake up markets

Oil remains in the vice of opposing forces

Opposing forces continue to squash volatility in energy contracts, leaving both Brent crude and WTI marooned in no-man’s land. Fears over protracted stimulus negotiations and a Covid-19 derived double-dip is capping gains. Meanwhile, a much weaker US dollar internationally is supporting the downside.

The net result was another relatively quiet session for oil. Brent crude limped 0.30% higher to USD43.40 a barrel. For now, it appears to have fallen back into its previous USD42.00/USD44.00 a barrel range. WTI rose 1.0% to USD41.70 a barrel and seems content to bounce around in a USD40.50/USD42.50 range for now.

Oil appears to have fallen off investor’s radars for now, as more excitement looms in other markets. The balance of probabilities still favours the rally to continue, but we may need a very dovish Fed to spur buyers to return. Only a daily close below USD41.50 a barrel for Brent crude, or USD40.00 a barrel for WTI, will suggest that a deeper downside correction will occur first.

Gold and silver produce emotional volatility in Asia

Precious metals traders’ nerves have been frayed today, including the author’s, after a sudden reverse over 30 minutes wiped out both metal’s impressive early gains. Gold is presently just 0.10% higher for the session at USD1944.50 an ounce. Silver is now only 0.25% higher at USD26.6580 an ounce. To give readers a clue just how wild the morning session has been, reread paragraph one of this commentary. Net net, silver has fallen 6.0%, and gold by 1.50%, since I started writing!

There is no news to drive the sudden reversals. Silver has been leading gold higher and in recent mornings has exploded higher in Asia and then stayed there. I suspect liquidity and itchy trigger fingers have played their part. Silver is a savage mistress at the best of times, with liquidity usually evaporating on aggressive uni-directional movers. The market may well have reached for stop-losses in both in early trading with liquidity thin, followed by an equally sharp reversal after mission accomplished.

That does not negate the fact that both precious metals staged spectacular rallies yesterday, with gold rising 2.15% to USD1942.00 an ounce, and silver rising 8.10% to USD24.6000 an ounce. A fall through USD1835.00 an ounce, or USD24.0000 an ounce on silver, could trigger another fast money stampede for the door. But given the underlying momentum of the rallies, these levels should now hold, as the underlying base case for higher precious metals is stronger than ever.

On that final note, I do acknowledge that my last sentence could be famous last words…

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst - Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia and the New York Times. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley