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Gold Prices Higher on Virus Fears Despite Asian Stock Gains

Gold Prices Higher on Virus Fears Despite Asian Stock Gains

2020-02-05 07:00:00
David Cottle, Analyst
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Gold and Crude Oil Talking Points:

  • Gold prices rose once more, taking back some of this week’s lost ground
  • Coronavirus headlines continue to drive this market and others
  • Crude oil markets seem to be more certain that production cuts are coming

Gold prices were higher in Wednesday’s Asia Pacific trade with the coronavirus once again driving the action as China’s death toll neared 500 people.

The outbreak also saw its first death in Hong Kong, with mainland China now reporting 479 fatalities overall.

Top White House economic adviser Larry Kudlow said on Tuesday that the virus would likely see any trade benefits from last year’s trade deal with Beijing postponed. That said he doubted that the outbreak would mean economic disaster for the US.

While counter-cyclicals such as gold were once again well-supported, even though regional stock markets were all well into the green thanks largely to hopes of increased Chinese stimulus aimed at countering the virus’ economic effects.

There are plenty of potential risk events for the gold market as Tuesday goes on. European Central Bank President Christine Lagarde will speak in Paris, while various Purchasing Managers Index data are on tap from around Europe and the US.

Gold BEARISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 18% -10% 7%
Weekly 19% -1% 11%
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Crude Oil Market Eyes Possible ‘OPEC Plus’ Cuts

Crude oil prices were higher as the market seems increasingly to expect that producers will take action to try and stem this year’s relentless downward pressure.

Technical specialists from the Organization of Petroleum Exporting Countries and associate nations in the so called ‘OPEC plus’ group are meeting in Vienna this week. They’re reportedly weighing further, longer output reductions in response to falling prices, and moving a planned policy get-together to this month rather than leaving it until March.

In the meantime, market focus will probably be on US inventory data from the Department of Energy due later in the global session. Last week’s shock stock rebuild hit the market but this is a volatile series in any case.

Oil - US Crude BULLISH
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Change in Longs Shorts OI
Daily 2% 4% 3%
Weekly -20% 6% -16%
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Gold Technical Analysis

Prices have fallen below both their previous daily chart range and the uptrend in place since early January, although so far there’s only been one daily close below the line.

Gold Prices, Daily Chart

However, the previous, better established range is clearly holding and can probably be expected to for as long as the market’s haven bid is underwritten by coronavirus headlines. The range base is some way below the market at $1538.37/ounce and that doesn’t look in imminent danger of a test. Indeed, if Tuesday’s gains can be built upon then the market might regain its former trading band. A break of $1589.27 confirmed by a daily close would see prices back up there.

Crude Oil Technical Analysis

US crude oil prices remain trapped within a broad band formed by the fourth and fifth Fibonacci retracement levels of their rise up from the lows of December 2018 to the highs of April last year, both of which still stand unbeaten since.

Crude Oil Prices, Daily Chart

It seems highly likely that there will be increasing focus on OPEC production cuts for as long as the market remains close to the psychologically important $50 level. With that in mind the broad range seems set to contain the bears, even if there’s little fundamental sign that much of this year’s falls will be reclaimed anytime soon.

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--- Written by David Cottle, DailyFX Research

Follow David on Twitter@DavidCottleFX or use the Comments section below to get in touch!

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