The outlook for Gold and Brent is very different from a year ago

Februar 22, 2021 13:46

Gold Brent Technical Analysis

We enter the last week of February with a very different technical outlook for gold and oil prices than this time last year, at the beginning of the pandemic. In February 2020, the future outlook for both gold and oil was completely bullish and bearish respectively. However, during the last part of the year and the beginning of 2021, the trends in both of these commodities seem to have swapped places.

Gold Analysis

During the first part of 2020, gold was one of the market's main protagonists with a rise of more than 25% that took it as high as  2,089 dollars per ounce. But after reaching this maximum, at the beginning of August, the price has continued to fall within the bearish channel until reaching levels close to 1,760 dollars at the 50% fibonacci retracement level of the previous uptrend.

These declines have led it to break below its important 200-session average after forming a double top in a failed attempt to break out of this channel. So it is currently struggling to maintain its first support level (red band and 50% fibonacci retracement level) in the area of the previous lows.

A bearish break of this level could lead the price to continue its downward trend within the channel, which would leave it practically free to reach the next support zone coinciding with the 61.8% fibonacci level and the red band that marks the low of June 2020 at around 1,670 dollars per ounce.

These declines can be explained by the improved outlook for the pandemic due to the vaccination process and the strong rises in the main stock market indices in the last part of 2020 and the beginning of 2021, which have led US indices to record highs.

As long as the price fails to break above the 200-session average and break the upper band of the bearish channel, the sentiment will remain bearish, although a bullish break of these levels could trigger a rapid and strong upward price movement.

Gold Daily ChartSource: Admiral Markets MetaTrader 5 - Gold Daily Chart. Date Range: 6 November 2019 - 22 February 2021. Date Captured: 22 February 2021. Past performance is not necessarily an indication of future performance.

Evolution of the last five years:

  • 2020: 21.86%
  • 2019: 15.45%
  • 2018: -3.22%
  • 2017: 12.75%
  • 2016: 10.12%

Brent Analysis

A whole year has passed since the sharp falls in the price of oil began at the start of the pandemic. This caused a sharp drop in demand for crude throughout the world, driving the price of a barrel of Brent to levels close to 15 dollars, and drove the benchmark barrel in the United States to trade at negative prices in April 2020.

Although the vaccination process has yet to get off the ground outside the UK and Israel, and the pandemic continues to wreak havoc on the economy, optimism is growing for the future. It is hoped that the vaccines and the arrival of better weather will slow down the pandemic. This optimism for the future has led the price of a barrel of Brent to reach levels not seen in the last year, with a rise of more than 14% so far this month. 

Technically speaking, last week the price fell by 1.48 although if we look at the weekly chart we can see how the price has strongly surpassed its 200 moving average, its bearish trend line and the meeting point of its 61.8% fibonacci retracement level and its 60 dollar resistance level, reaching the upper part of the bullish channel. 

After the recent rises we cannot rule out a cut back in the short term, as this strong rise has caused the stochastic indicator to be at overbought levels. Although for the moment, and in the event of this correction, as long as the price of oil maintains its current support levels the sentiment will remain optimistic for the future.

In any case, at the beginning of next month OPEC will be meeting and it will have to decide whether to increase the level of production or whether to maintain the current level. A significant increase would increase the current supply and could lead to cuts in the price of oil.

On the other hand, it seems that the United States is going to resume negotiations with Iran regarding the sanctions imposed by the US government due to the Iranian uranium enrichment programme. A change in this policy that could lead to the lifting of US sanctions could also jeopardise the current upward trend, although an increase in Iran's production could be mitigated by cuts in the production of other OPEC+ member countries.

Brent Weekly ChartSource: Admiral Markets MetaTrader 5 - Brent Weekly Chart. Date Range: 14 August 2014 - 22 February 2021. Date Captured: 22 February 2021. Past performance is not necessarily an indication of future performance.

Evolution of the past five years:

  • 2020: -21.52%
  • 2019: 22.68%
  • 2018: -19.55%
  • 2017: 17.69%
  • 2016: 52.41%

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