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Gold Prices Supported By Brexit Turmoil, US-China Trade Uncertainty

Gold Prices Supported By Brexit Turmoil, US-China Trade Uncertainty

2019-10-21 05:50:00
David Cottle, Analyst

Gold and Crude Oil Talking Points:

  • Gold was steady, supported by yet more delay in the United Kingdom’s tortured exit from the European Union
  • Weakness in growth and export data in Asia kept haven assets in demand
  • Oil prices slipped as investors fret the market from both sides

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Gold prices remain supported quite close to their September highs, but the oldest risk hedge saw little movement as a new trading week got under way, thanks largely to a lack of news on either of the market’s two main drivers.

The first of those is of course Brexit. There was a burst of optimism last week that a deal might be possible between he UK and European Union. However Parliamentimposed more delay on Saturday which, while it might not scupper a near-term agreement, would seem to make it less likely. The second driver is US/China trade. An interim agreement was reached earlier this month but a full, written deal remains elusive even as both sides say they are working towards it.

There was plenty of evidence that trade conflict is hitting the world economy. The International Monetary Fund warned that Chinese growth could slip below the psychologically crucial 6% level this year, while weaker trade data were released from both Japan and South Korea.

While these uncertainties persist, among others, it seems unlikely that gold will lose meaningful support.

Oversupply Worries Haunt Global Crude Oil Markets

Crude oil prices meanwhile were lower as investors fretted both weaker demand and signs of growing supply from traditional producers. September did at least see a 9.4% on-year rise in Chinese refinery throughput, but doubts about overall Chinese demand over the medium term continued to weigh on energy prices in Asia.

Russia said on Sunday that it produced more oil in the same month than was agreed in a deal between it and OPEC to cut overall supply by 1.2 million barrels per day this year. Talks between Kuwait and Saudi Arabia aimed at restarting production in some jointly operated fields heightened oversupply worries.

Gold Technical Analysis

Spot gold is making a classic ‘pennant’ pattern on its daily chart. This confluence of uptrend and downtrend is usually seen as a continuation formation. That means that the market should resume its previous motion once the pattern plays out.

Spot Gold, Daily Chart

In this instance however it’s quite hard to see a clear trade signal right before the pennant began to take shape. At the margin however it looks as though the price looks set for more gains.

Crude Oil Technical Analysis

Prices have broken above the downtrend channel which marked the retreat from mid-September’s highs, but bulls have failed to run with this break so far. A broad trading range is in place, with its base at October’s low so far of $50.93/barrel.

It’s notable however that this point coincides with lows not seen since the early months of 2019, with the low of December 2018 at $42.80 potentially back in focus if a break under recent lows is sustained.

US Crude Oil, Daily Chart

While the chart is looking gloomier for bulls, oil prices are especially vulnerable to better news on the trade front which has a tendency to punish the more extreme bearish bets.

Commodity Trading Resources

--- Written by David Cottle, DailyFX Research

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

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