Oil higher on Moderna, gold unsteady

Moderna re-energises oil prices

Moderna’s vaccine announcement had probably its largest effect on oil out of the main asset classes. Hopes of a return of social mobility saw airlines rally overnight, and that flowed through to anticipated oil consumption and higher oil prices. Oil had already rallied in Asia after robust regional data, with the vaccine news energising the rally further.

Brent crude finished the day 3.0% higher at USD43.85 a barrel. WTI leapt by 3.30% to USD41.45 a barrel. In line with other regional markets, Asian trading has been muted, but both contracts have added 15 cents a barrel.

The vaccine news of the past two weeks has almost certainly put a long-term floor under oil prices, to OPEC’s immense relief. We are unlikely to see Brent’s November low around USD36.00 a barrel retested anytime soon, even if Covid-19 weakens consumption in the US and Europe into the year-end.

That said, hope only goes so far. Brent crude will need to see the contango in its futures curve flip to modest backwardation before we can conclusively say the worst is over. In the meantime, it faces formidable medium-term resistance between USD46.00 and USD46.50 a barrel. It has support layered at its 100, 50 and 200-DMA’s at USD42.75, USD41.60, and USD39.80 a barrel respectively.

The Baker Hughes Rig Count has been quietly adding rigs in the US over the past few weeks, suggesting the worst may be over there as well. WTI faces medium-term resistance at USD44.00 a barrel, a series of highs dating back to August. Its 100-DMA at USD40.40 a barrel provides initial support. Only a failure of the 200-DMA at USD36.00 a barrel will materially change my view.

Gold holds trendline support

Gold spiked lower after the Moderna announcement, falling to trendline support at USD1864.50 an ounce. It quickly recouped those losses to finish at USD1888.80 an ounce, as lucky a number in Asia as you are ever likely to see. All the more impressive was that gold rallied even as the US yield curve steepened.

After the trauma of the post-Pfizer price action, gold has now held its ascending trendline support three times over the past week. It suggests the momentum has now swung to the topside, especially with more easing from the Federal Reserve almost certain.

Gold’s initial topside target is the USD1905.00 to USD1907.00 region, its 50 and 100-DMA’s, followed by USD1935.00 an ounce. The ascending trendline support is at USD1866.50 an ounce today, followed by the USD1850.00 an ounce zone. A loss of USD1850.00 an ounce would target a more significant retreat to the 200-DMA at USD1789.00 an ounce.

One caveat to the bullish outlook is that gold has yet to de-correlate itself from aggressive equity market selloffs. I am loath to call the low for gold until it survives something like a Trump-tweet surprise that torpedoes equity markets violently.

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