A Quiet Start
The gold market is off to a quiet start as the new trading week gets underway. The yellow metal is up about $1.80 per ounce in early afternoon trade as stocks see renewed selling pressure while crude oil plunges. The oil market, in fact, traded for below $1.00 per barrel for the first time ever, and the May contract, which expires tomorrow, has moved to the lowest levels since the contract first began trading in 1983.
The hammering of crude oil is a mixed bag in the eyes of metals traders. The extremely low price, which is a result of a massive supply glut, is unnerving and fueling investor anxiety. The lower price, on the other hand, could be viewed as deflationary and could also cause worries, especially if prices were to maintain such low levels for a period of weeks or months.
Crude oil trading for less than $10 per barrel sems unlikely at this point, however, as the next contract for June delivery is still maintaining trade over $22 per barrel. If the COVID-19 crisis continues, however, demand for gasoline and oil could remain very low and crude oil could potentially sink further, keeping front month prices under $10 per barrel.
Unless there is a significant increase in demand for crude, supplies could continue to outweigh storage capacity. The current state of U.S. storage is full, and any subsequent oil could need to be disposed of by producers. May oil futures have turned negative in afternoon trade, moving lower to -$10 per barrel.
The onslaught in crude oil today has stock investors playing defense. The benchmark Dow Jones Industrial Average is down some 400 points for a decline approaching the two percent level. Another wave of significant selling in equity markets should not be surprising, however, as the market is now only about 15 percent below all-time highs made in February. The pace of the stock market’s recent rebound has puzzled many investors. Numerous analysts have warned against getting sucked into a market that will likely roll back over, and some have suggested that the lows have not yet been reached.
Heightened stock market volatility, heavy selling, zero percent interest rates and massive QE could all keep the gold market well supported in the weeks and months ahead. The bulls have a solid technical advantage currently, and gold prices are in the midst of a strong uptrend that could take prices back to previous all-time highs near $2000 per ounce or beyond. Support may be found in the $1675 region, while the bulls need to overcome resistance in the $1800 area.
In other news, recent data from the CFTC may bolster the bullish case for gold. A recent Commitment of Traders report showed that bullish positioning in the gold market by money managers has not changed much this month. The buying, the report showed, has been largely attributed to longer-term investment vehicles, such as ETFs, and could potentially point to rising long-term demand for the metal.