Gold and oil price analysis as Europe returns to lockdown

At least seven European countries have introduced lockdown measures as of today to increase investors’ short-term concerns. France, Germany, Belgium, Italy, Spain, Portugal and Greece have announced temporary lockdowns in a bid to curb the spread of the novel coronavirus. 

All non-essential businesses will be forced to close in France until at least December 01. In a similar move, Germany decided to impose a partial lockdown starting from today and lasting for four weeks.

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“It was with a heavy heart we decided on measures but they are necessary. If we manage to stick to lockdown for month, we can break the second wave,” Merkel said today.

Italy has become one of the countries in Europe to introduce temporary lockdown measures. A week ago, the authorities ordered all bars and restaurants have to close by 6 PM, while gyms, swimming pools, theatres and cinemas were told to close. 

Spain declared a state of emergency and introduced a nationwide curfew between 11 PM and 6 AM, starting from Sunday 25 October. People are allowed to travel only if they’re going to work, buying medicine or caring for someone.

Gold prices rise as investors await election results

Gold prices moved up on Monday on rising concerns ahead of tomorrow’s presidential elections in the U.S. 

“We are seeing something of a resurgence in safe-haven buying,” said Harshal Barot, a senior research consultant for South Asia at Metals Focus. 

U.S. dollar, also considered a safe-haven asset, moved slightly higher by 0.1% against a group of currencies. Barot added that we’re not likely to see a significant gold trend before the outcome of the election is clear.

Biden has a solid national lead over Donald Trump, however, when it comes to swing states, the battle is much tighter. 

“The longer-term view is bullish on expectations that we are going to get a large stimulus deluge from the U.S. which ultimately should weaken the U.S. dollar and send gold higher,” said Stephen Innes, head global strategist at financial services company Axi.

Avtar Sandu, senior commodities manager at Phillip Futures emphasized that a “blue sweep” of both the White House and Senate would substantially improve the prospects for a quick and big fiscal stimulus which could be very significant for precious metals. 

The number of coronavirus infections in Europe hit 10 million on Sunday, resulting in the reintroduction of lockdown measures in the U.K. and Portugal, who followed steps of France and Germany.

“Gold traders are worried that these lockdowns could lead to deflationary pressures… gold’s next trade is really for a reflation trade,” Innes added.

Spot gold climbed by about 0.5% to $1,885.00 per ounce, while U.S. gold futures advanced 0.2% to $1,884.00 Today’s rise has pushed the price action towards the intraday resistance at $1,890.00 – where the 200-DMA trades at. A move higher would call the descending trend line, which trades around the $1,900.00 mark – into the action.

Oil prices fall on new lockdown measures across Europe

As Europe heads back into lockdown, investors are worried that a new cycle of weaker fuel demand is arriving as well. The reintroduction of nationwide lockdowns in some European countries and concerns over the upcoming presidential election in the United States have sent oil prices lower.

EU member countries including France, Germany and the U.K. have reintroduced lockdowns to curb the fast-spreading second wave of the coronavirus. 

International oil trading companies believe demand for oil will keep weakening with Vitol projecting winter demand at 96 million barrels per day (bpd) and Trafigura estimating it to plunge to 92 million bpd or lower.

“A lot of traders are now looking at the U.S. and their rising infection rates and wondering if Europe is providing the model for what will happen in the U.S. in the coming weeks,” said Michael McCarthy, head strategist at CMC Markets in Sydney.

Oil’s losses were capped following the growth of Japan’s exports for the first time in 2 years and factory activity in China climbing near the highest point in a decade. 

WTI and Brent plunged by 11% and 8.5%, respectively, for the second month in a row in October on fears over weak demand and increasing supplies from OPEC and the United States.

OPEC+ has recently announced its decision to reduce oil output by around 7.7 million barrels per day (bpd) to support prices.

“Fresh worries that politicians worldwide will be pressured to lock down Christmas this year is hitting the oil markets like a ton of bricks. The alarmingly high level of angst in the markets makes it easy for the oil roller coaster to crest rally peaks and head downhill at alarmingly quick speeds,” Innes said. 

Brent crude futures for January dropped over 4% while crude oil prices fell around 6% to $33.67 a barrel – the lowest that crude oil prices traded since May. The price action has, in the meantime, returned to trade above the $35.00 handle. 

Any rebound is likely to be capped by the broken support – now resistance – at $36.50. On the downside, there is practically no bigger support that oil buyers can rely on until $31.20.

Summary

Gold traders pushed prices of the yellow metal higher on Monday amid increasing concerns over the upcoming presidential election in the United States on November 3. On the other hand, oil prices have dropped by 4% after a few countries in Europe reimposed lockdown measures and due to concerns regarding tomorrow’s presidential election in the United States.