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Gold and Crude Oil Price Outlook Hinges on Close US Election Race, Fed

Gold and Crude Oil Price Outlook Hinges on Close US Election Race, Fed

2020-11-05 05:00:00
Daniel Dubrovsky, Analyst
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Gold, Crude Oil, US Election Results, OPEC+, Federal Reserve - Talking Points:

  • Gold prices gyrated as crude oil gained around US election results
  • The race is very tight, uncertainty risk still holds. Fed is also ahead
  • XAU/USD technical outlook biased lower, oil looking more neutral
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Gold prices gyrated over the past 24 hours as the precious metal, and crude oil prices, were glued to the first day of US election results. Risk aversion initially kicked in as hopes of a Joe Biden win with a Democrat ‘blue wave’ faded. Markets do not like uncertainty, and prospects of a contested election as Donald Trump pulled ahead boosted the haven-linked US Dollar. Gains in the greenback pressured anti-fiat XAU/USD lower.

The yellow metal eventually stabilized as Treasury yields, particularly on the far end of the maturity curve, tumbled. This is as Biden picked up key swing states Michigan and Wisconsin, increasing his chance of taking the presidency. However, the Senate was looking to hold Republican, opening the door to a divided government. This likely dented prospects of a larger-than-expected fiscal package, boosting Treasuries.

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Now, all eyes are on Arizona and Nevada where Biden has cautious leads. If Biden manages to take these states, he will accumulate exactly 270 electoral votes, enough to hind him the White House. Voting is also still being counted in Pennsylvania, Georgia and North Carolina where Trump has the edge at the time of writing. If Mr Trump pulls ahead, that surprise may reintroduce volatility into financial markets ahead.

Crude oil prices still rallied on Wednesday as the commodity benefited from an unexpected 8 million barrel drawdown in inventories from last week, according to the EIA. Oil also enjoyed prospects of a delay in OPEC+ bringing up production. Reports crossed the wires earlier this week that Saudi Arabia and Russia were pressuring members to prolong cuts into 2021 rather than slowly tapering them off.

US election results still remain a key focus over the next 24 hours, but the Federal Reserve interest rate announcement is another one. Policymakers are not anticipated to adjust benchmark lending rates or the size of asset purchases. However, the Fed may soothe investors by reiterating its support to the economy given a lack of expediency on the fiscal side for another package. That may benefit gold and crude oil prices.

Gold Technical Analysis

From a technical standpoint, the gold outlook remains biased to the downside. Falling resistance from August is keeping prices under pressure. In addition, a bearish ‘Death Cross’ formed in September when the 20-day Simple Moving Average (SMA) crossed under the 50-day one. Key support sits below as the 1848 – 1863 zone with the 1924 – 1933 inflection zone above.

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XAU/USD Daily Chart

Gold and Crude Oil Price Outlook Hinges on Close US Election Race, Fed

Chart Created Using TradingView

Crude Oil Technical Analysis

WTI crude oil prices seem to be looking fairly neutral from a technical point of view. Here there is also a bearish ‘Death Cross’ established in September. Yet, the 36.15 – 37.10 support zone held recently as positive RSI divergence unfolded. The latter is a sign of fading downside momentum, which can at times precede a turn higher. Key resistance sits above between 42.91 – 43.87.

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WTI Crude Oil Daily Chart

Gold and Crude Oil Price Outlook Hinges on Close US Election Race, Fed

Chart Created Using TradingView

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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