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Crude Oil and Gold Prices Drop into the Weekend, Setting Course for Deeper Losses?

Crude Oil and Gold Prices Drop into the Weekend, Setting Course for Deeper Losses?

Daniel Dubrovsky, Strategist

Crude Oil, Gold, Texas Production, Iran Nuclear Deal, Treasury Yields, Commodities Briefing - Talking Points:

  • Crude oil prices drop as Texas output begins to recover after deep freeze
  • Gold extended losses from December as it faces its lowest point since June
  • Risk aversion may be picking up into the weekend, will momentum carry?
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Crude oil prices weakened over the past 24 hours after WTI spent most of this month rallying over 18 percent. Some of the temporary fundamental forces driving up energy prices seem to be fading. Power is being slowly restored in parts of Texas following extreme cold climate, opening the door to oil wells being restarted and bringing some supply back into a market that is ripe with demand.

Further hindering energy prices was a report that the US would agree to meet with Iran to start talks about returning to the 2015 Nuclear Deal. If this occurs, the nation’s oil production could grow by about 1 million barrels per day (bpd), bringing with it much-needed supply as the global economy recovers from the coronavirus pandemic.

Anti-fiat gold prices also weakened, but the yellow metal has been falling persistently as of late. That is party due to rising longer-term Treasury rates and a stabilizing US Dollar. Gold is a non-yielding asset, so rising rates of return for cash make it a relatively less-appealing commodity. It declined despite weakness on Wall Street, where the Dow Jones and S&P 500 suffered as jobless claims clocked in worse-than-expected.

Sentiment is souring heading into the remainder of the week, with APAC equities declining broadly on Friday. A continuation of this dynamic may continue working against growth-linked crude oil. Gold may be also vulnerable if risk aversion picks up pace and drives up demand for the US Dollar. Eyes are on US Markit Manufacturing PMI due at 14:45 GMT, check out the DailyFX Economic Calendar for updates on the data.

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Crude Oil Technical Analysis

WTI crude oil is eying the January 20th, 2020 high for immediate support. If it breaks down, oil may be at risk of extending losses towards rising support from November. At that point, WTI may have an opportunity to resume the dominant uptrend. Such an outcome would eventually place the focus on the 2020 peak at 65.62. Otherwise, falling under rising support would open the door to deeper losses towards early 2021 lows.

WTI Crude Oil Daily Chart

WTI Crude Oil Daily Chart

Chart Created Using TradingView

Gold Technical Analysis

Gold prices are pressuring the November low in what has been the short-term downtrend since late December. A drop through support would open the door to testing the lowest price since June towards the 78.6% Fibonacci extension at 1715. Otherwise, a bounce here may place the focus on falling resistance from December – red line on the daily chart below.

Gold Daily Chart

Gold Daily Chart

Chart Created Using TradingView

--- Written by Daniel Dubrovsky, Strategist 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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