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Oil pares losses, gold steady

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Oil

Crude prices are drifting lower as higher prices have prompted many refiners to go back online.  COVID cases continue to decline in the US and optimism is high the rest of the world is not too far behind.  The oil market deficit that is in place will not change anytime soon despite the recent bearish headlines of rising COVID cases across Eastern Europe and Asia, potentially additional output from Iran, and expectations it won’t be a particularly bad winter for the north.

The dip in crude prices will be temporary but could accelerate a little more if the natural gas prices correct even further.  Part of the recent rally in crude came from expectations for added demand due to a shortage of natural gas.  The global crude demand outlook is too good for a sustained pullback with oil prices.  WTI crude should have strong support ahead of the USD 80 level.  Weakness in crude prices has been overdone and the risks of USD 100 oil still remain.

Gold

Gold prices are holding up nicely after the ECB turned somewhat more hawkish on inflation.  Gold bulls should be encouraged that prices are fluctuating around the USD 1800 level despite hawkish turns by the BOC and ECB.  Gold’s last major test will be the Fed taper announcement next week.  The Fed should do a better job in pushing back market expectations over tightening.  Gold needs sustained dollar weakness in order to thrive.  Eventually, it will trade more like an inflation hedge and react less to headlines of central banks pivoting away from stimulus, rising global bond yields, and emerging market rate hiking cycles.

Gold will likely trade through USD 1800 several times before we get to Wednesday’s FOMC decision.

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.

Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya

@https://twitter.com/edjmoya

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