CRUDE OIL & GOLD TALKING POINTS:
- Crude oil prices rise as risk appetite recovers after rocky APAC open
- Gold prices extend gains as risk-on mood drives US Dollar downward
- Sentiment may sour on fears Covid-19 outbreak will accelerate anew
Financial markets were in a downbeat mood at the start of the trading week, picking up the negative lead from Friday’s Wall Street trade. That translated into a downside gap for sentiment-linked crude oil prices. The move would not prove lasting however, with the WTI benchmark swiftly reversing course alongside a turn-around on Asia-Pacific stock exchanges, closing the opening deficit to set session highs.
Gold picked up where it left off on Friday, extending a spirited rise to hit the highest levels in a month. That move came as bond yields fell, a common phenomenon at times of risk aversion when capital flows to the perceived safety of government debt. Lower rates bolstered the relative appeal of the non-interest-bearing yellow metal.
It seemed to be a weaker US Dollar helped gold continue to march higher Monday morning however, while yields were little-changed. Recovering sentiment weakened the haven currency, speaking to bullion’s appeal as an anti-fiat alternative.
Looking ahead, a spirited rise in bellwether S&P 500 futures points suggests the risk-on mood has scope for follow-through. Crude oil probably has more room to rise in this scenario. Gold’s gains seem a bit more tenuous however: upside momentum may fizzle if the markets’ chipper mood begins to pull yields upward, tarnishing the metal’s appeal.
Headline sensitivity still looks acutely elevated however, making it relatively easy to envision a scenario where another about-face in sentiment re-establishes a risk-off bias. The threat of a second wave of the coronavirus outbreak is almost certainly front-and-center for investors. An off-putting headline that stokes these concerns and sends risk-seeking traders scrambling is an ever-present danger.
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CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices have inched their way back up to test range resistance at 40.42, the June 8 high. Breaking above that is likely to target the 42.40-43.88 zone, anchored by former support at the December 2018 swing bottom. Still, a bearish Dark Cloud Cover candlestick pattern remains valid and – coupled with negative RSI divergence – hints at double top potential. A daily close below support at 34.78 may open the door to challenge the 27.40-29.11 inflection region.
Crude oil price chart created using TradingView
GOLD TECHNICAL ANALYSIS
Gold prices are pressuring the top of a choppy range encasing them since mid-April. A daily close its upper layer, marked by the May 18 highat 1765.30, looks likely to expose the 38.2% Fibonacci expansion at 1790.78. A turn back lower that clears support in the 1679.81-93.92 area probably eyes the 38.2% Fib retracement at 1645.40 thereafter.
Gold price chart created using TradingView
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— Written by Ilya Spivak, Head APAC Strategist for DailyFX
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