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Gold Edges Lower as Coronavirus Worries Take Back Seat To Stock Gains

Gold Edges Lower as Coronavirus Worries Take Back Seat To Stock Gains

2020-02-11 07:13:00
David Cottle, Analyst
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Gold and Crude Oil Talking Points:

  • Gold prices headed down as Asia Pacific stock markets got some respite
  • Still, coronavirus and the disruption it has caused continues to weigh
  • Crude oil prices rose, with the market still looking to production cuts

Gold prices edged lower on Tuesday as gains for US stocks in the previous session stoked risk appetite in the Asia Pacific region despite the ongoing spread of coronavirus.

Chinese policymakers are expected to roll out further stimulus efforts to combat the economic effects of the contagion and these expectations seem to be supporting local stock markets too, although they remain clearly on edge.

Market focus will now turn to Federal Reserve Char Jerome Powell’s forthcoming Congressional testimony. He’s expected to point to the US economy’s many bright spots but to claim once again that interest rates can remain low as inflation is still subdued.

There could be some support for gold if he does so as that market generally does better when rates are expected to remain low.

Gold BEARISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 12% -10% 3%
Weekly 10% 2% 7%
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Crude oil price meanwhile managed to rise with stock markets even though the effect of the coronavirus on the economy of largest energy importer China is a paramount concern. The Organization of Petroleum Exporting Countries and its allies, the so-called ‘OPEC Plus’ group is mulling further production cuts but Russia has said it needs more time to consider proposals.

US crude oil stocks were estimated to have risen for a third straight week according to a Reuters survey. Market watchers are looking on average for a reserve rise of 2.7 million barrels in the week to February 7. Supplies from Brazil have been growing with major local producer Petrobras hitting an annual output record of more than three million barrels per day in the final quarter of 2019

This news will do little to detract from the prevailing view that the oil market is extremely well supplied at a time when demand is highly uncertain.

Oil - US Crude MIXED
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Change in Longs Shorts OI
Daily 3% -5% 1%
Weekly -19% -3% -16%
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Gold Technical Analysis

Gold Price, Daily Chart

Gold prices have resumed their uptrend but unless the bulls can push on back toward February 2’s peak of $1591.73/ounce then the market will remain in some risk of topping out again and making lower lows. Support looks reasonably strong in the $1559.50 region which the market hovered around back in mid-January. It now marks the base of the current uptrend channel.

However, even if that channel were to break to the downside gold’s short-term daily range looks solid enough and it’s hard to see the market spending much time below it while the coronavirus dominates headlines.

Crude Oil Technical Analysis

Crude Oil Technical Analysis

US crude oil boasts a very well-respected downtrend channel on its daily chart going back to the peaks of early January. The market seems to be attempting an upside break for the fist time since February 6, but daily ranges are narrowing and conviction may in consequence be low. It’s likely that the fundamentals of OPEC’s decision will drive this market, and that what we now see is mere range trading rather than a substantive push to the upside

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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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