Gold & Silver Market Analysis for Wednesday 6th October

Oil Price Analysis – WTI close to $80 per barrel

This week, the WTI crude oil price just reached a new 7-year-record after the OPEC, a group of oil-producing countries, decided not to accelerate plans for increasing the supply, in an effort to maximize profits.

WTI is an acronym for West Texas Intermediate, the company responsible for trading and delivering light, sweet oil at Cushing, Oklahoma. In a few words, it is the benchmark for U.S. oil standards, the main rival of Brent – an oil carried from the Northern European Sea.

On the 20th of April 2020, in the middle of the first wave of the pandemic, the WTI price fell – for just a few hours – below zero, reaching a historical low of minus 37 dollars. The collection tanks in the warehouses were full, with a clear situation of oversupply.

A year and a half later, the WTI benchmark is close to $80, but this time a new scenario is at play. The liquidity injected into the system by central banks and the easing of restrictions ramped up overall demand, is resulting in a continued recovery of the price.

This situation is, of course, having a significant impact on inflation rates, which jumped to 5.3% in the U.S. and 3.4% in Europe. Aside from inflation, the risk of a global energy crunch is a factor to consider, as prices continue to rise with demand exceeding pre-covid levels.

From a technical point of view, the dominant trend is still positive for the pricing of WTI and Brent. However, the fundamentals – a growth of demand while the supply remains static – seem to be the main driver of oil’s rally against other energy supply alternatives, in this case. WTI and Brent have gained around 60% this year to date, but the outperformer is natural gas, with a jump close to 150%.

Due to this, investors are now looking carefully at the energy sector, with the trend showing an upwards slope, despite sudden changes in market behaviour.

Kinesis Money Gold Analysis

At present, the gold price is being traded just above $1,750, looking for a clearer directionality as investors await the U.S. labour data.

Today, the session started in red with the dollar remaining strong, and the fiat pair: EUR/USD, being traded below 1.16.

The bullion rebound, seen yesterday, after the test on the support zone of $1,750 was a positive signal. Once the price approaches this level, buyers appear to be active, resulting in price hikes. However, as long as the price remains above the aforementioned threshold, there could be space for further recovery, since gold is still down 7% this year to date (YTD). 

As mentioned, investors are now focusing on nonfarm payrolls (NFP), with reports such as the ADP National Employment Report to be published later today and the NFP to be released on Friday. 

What’s clear is that the gold price is holding, despite the oil rally. Although, the climbing oil prices are an inflationary driver, which could add pressure for the Federal Reserve to suddenly instigate the tapering process – resulting in a potential weakness for gold.

Kinesis Money Silver Analysis

The silver price is declining slightly but is still being traded in the region of $22.5. In the last few days, we have seen increasing signals of recovery, even if it is still too early to declare a proper inversion of silver.

The buyers’ pressure has not yet managed to break up the resistance zone of $22.60 – 22.70. A clear break-up of these levels will open space for a quick rebound above $23.

Sellers could regain strength if the price falls below $22.3, with space to reach a new test of $22. This past week, the levels reached ($21.5) suggest that it’s unlikely pricing will be retested in the short term.

Carlo Alberto De Casa is Market Analyst for Kinesis Money.

He also writes as a technical analyst for the Italian newspaper La Stampa.

Carlo Alberto provides regular commentary for UK outlets including the BBC, Telegraph, the Independent Bloomberg & Reuters. He is also a commentator for CNBC Italy. He worked for Bloomberg as their Equity Research Fundamental Analyst before joining brokerage ActivTrades in 2011 to specialize in currency markets and commodities. In 2014 he published a book on gold and the gold market, followed by a new updated edition in 2018.

This report is not an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance.