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Gold Prices Get Boost as Apple Warning Sharpens Virus Fears

Gold Prices Get Boost as Apple Warning Sharpens Virus Fears

2020-02-18 07:00:00
David Cottle, Analyst
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Gold and Crude Oil Talking Points:

  • Gold prices were higher as markets weighed Apple’s virus worries
  • HSBC earnings missed forecasts too, adding to a sense of corporate gloom
  • Crude oil was lower again although the market still thinks production cuts are coming

Gold prices were higher on Tuesday in Asia as Apple’s warning that its revenue will miss guidance as the coronavirus slows its Chinese supply chains sent investors flying from risk.

The US tech giant said that factories producing the iPhone and other staples have begun to reopen but that the process was taking longer than expected, making the year’s first quarter very tough. This very tangible evidence of economic impact saw regional stock markets tumble. Meanwhile HSBC reported profits that missed expectations, adding to the downbeat mood.

There’s very little on the global economic data schedule likely to tear market attention away from this gloom, with Germany’s ZEW sentiment survey the probable highlight. Minutes from the Reserve Bank of Australia’s last monetary policy meeting kept the prospect of still-lower interest rates very much in play. This backdrop is by no means confined to Australia and supportive for gold as it tends to do better as a non-yielding asset when risk-free returns are low.

Gold BEARISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 7% 2% 6%
Weekly 7% 3% 6%
What does it mean for price action?
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Crude oil prices slipped on much the same worries that supported gold.

Still, the prospect of a virus hit is not a new one in this market, the International Energy Agency having predicted just last week that 2020’s first three months could see the first quarterly fall in energy demand since the financial crisis. Investors are still persuaded that the Organization of Petroleum Exporting Countries and allies including Russia, will cut production, possibly quite soon, and there have been some reports that Chinese refineries are coming back on stream, taking more crude oil as they do.

Gold Technical Analysis

There’s a lot of green on gold’s daily candlestick chart for the past two weeks, with gains to be seen for ten of the last twelve trading sessions.

Gold Prices, Daily Chart

In a fundamentally skittish market where even ‘risk on’ sessions which have seen stock markets gain don’t mean gold falls far if at all, there seems little reason to bank on a major near-term reversal.

That said the bulls have so far failed to push on to the peaks of late January and early February, where they’ll need to take the market, sustainably, if this year’s highs are to be challenged again.

Moreover, the market looks a little overbought and some consolidation may be seen this week as a result. The current uptrend channel remains quite well respected though and support derived from it at $1571 may well survive if tested. Even if it doesn’t, support from January in the $1560 region looks solid.

Oil - US Crude MIXED
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -4% -5% -4%
Weekly -24% -14% -22%
What does it mean for price action?
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Crude Oil Technical Analysis

US crude prices have clearly broken above their daily chart downtrend channel but the bulls have struggled to build on that break and the move shows signs of exhaustion.

US Crude Prices, Daily Chart

A narrow band between the highs of February 5 at $52/barrel and the last two days’ intraday top of $52.63 seems to be capping a market which doesn’t look obviously overbought at current levels. It’s probably worth watching where the market finishes on Tuesday with regard to this band. A daily close below it would put February’s lows clearly back in play as support.

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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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