Focus on Commodities Amid Sanctions and Seemingly Lower Trade Tension

Adam

Summary:

Gold holds above $4,000 as trade tensions ease and profit-taking slows, while new U.S. sanctions on Russian oil firms have lifted oil prices, though key resistance levels could limit further gains.

Oil, in particular, has experienced some of its largest intraday movements since the Twelve-Day War in June. This article summarizes recent developments and then briefly examines the charts of XAUUSD and USOIL.

Although threats of new tariffs on China by the American government contributed to uncertainty and gains for gold earlier this month, these seem to have calmed down somewhat recently. On 22 October, Donald Trump confirmed plans to meet his Chinese counterpart Xi Jinping, at which some degree of compromise seems possible, while exports of rare earth metals have moved out of traders’ focus. Two more cuts by the Fed before the end of the year have been entirely priced in with a 98% probability according to CME FedWatch.

The American government ordered the freezing of all US-based assets of Lukoil and Rosneft this week and threatened secondary sanctions on foreign banks that expedite purchases of oil from these companies. This is a potentially significant move because it could strongly affect supplies of oil to China, India, and other smaller countries, which are primary markets for Russian oil; the shortfall would need to be made up with supplies from elsewhere, likely boosting demand for oil from Gulf countries.

The key releases coming up in the next few weeks are American inflation, currently scheduled for Friday, 24 October, the Fed’s meeting and nearly certain cut on 29 October, and the double NFP on 7 November covering both September and October. The ongoing shutdown of the American government has significantly disrupted the regular release of data and is likely to mean that upcoming figures are at least somewhat less reliable.

Gold Unlikely to Push Back Below $4,000 for Now

The week beginning 20 October has so far been the largest weekly loss for gold in five years, as the focus on trade wars has declined and most other major fundamental factors appear to be priced in. There was significant profit-taking on 17 and, particularly, on 21 October. With the meeting between Donald Trump and Xi Jinping expected to go ahead on 31 October in Korea, the current dispute seems unlikely to escalate again in the meantime, but any unexpected escalation could drive gold higher once more.

The price held above $4,000 on 22 October with a strong, continuing upward reaction, making this round number a possibly practical as well as psychological support. The same day’s long-tailed doji would also suggest less demand for selling and reluctance to push lower. The 20 SMA is also in view as a potential short-term dynamic support.

Now that there’s no longer an overbought signal from either Bollinger Bands or the slow stochastic, there could be more gains back to the record high or possibly higher if fundamentals support. Buying volume has increased enormously in the last several days of trading, but an immediate push above $4,400 might be too aggressive an expectation.

Oil Jumps After New US Sanctions on Russia

New sanctions against Lukoil and Rosneft by the USA pushed oil up recently as traders worried that threatened secondary sanctions on banks working with these companies could disrupt supply to China, India, and other importing countries. While this has alleviated recent concerns about significant oversupply, the medium-term effects are not yet clear.

$54.75-56 seems to be confirmed as an area of support on the weekly chart, with 17-20 October having been the third unsuccessful test. The crossover of the slow stochastic in oversold and a clear break above the 20 SMA might normally be a strong buying signal, but volume doesn’t clearly support the bounce yet.

The 50 SMA from Bands, which is currently being tested, appears to be an important short-term dynamic resistance. Confirmation of more gains might come from a daily close clearly above $62. Beyond that, the 200 SMA, just below $64, is likely to be a strong resistance from which a breakout would probably require a significant uptick in buying volume.

Source: fxempire

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