Gold Regains Position Whilst Brent Faces Resistance

December 09, 2020 15:00

Gold Regains Position Whilst Brent Faces Resistance

November brought with it announcements from both Pfizer and Moderna regarding the effectiveness of their coronavirus vaccines. These brought relief to the financial markets, leading to strong rises in equities and making November one of the best, if not the best, months in the history of the stock market.

The surge in the stock markets resulted in some investors abandoning their safe haven assets and throwing everything behind the hope that these vaccines really are the solution to this global crisis. This resulted in a negative month for gold in which the asset closed November with a total loss of 5.41%, thereby increasing the downward trend which began after gold reached its highest price of 2,075 USD per ounce on 7 August 2020.

From an economic perspective, it must be stressed that the vaccine alone is not enough for a return to normal in the short-term. Although countries such as the United Kingdom have begun to vaccinate their population, this process will by no means happen overnight and it could be months before we see the consequences and begin the return to normality.

Technically speaking, so far this month, gold has experienced a rise of around 4.6%, recovering its previous significant support level of 1,850 USD after bouncing off the 50% Fibonacci level and the lower band of the bearish channel that began after reaching its highs and in doing so, has held its 200 period moving average in red.

Holding this level is very important for gold to have the possibility of attacking the high zone of this bearish channel, which is acting as its main resistance level, but gold cannot be expected to reach its new highs until it breaks its current resistance level.

If, however, it is unable to maintain this support level, then gold could again face its 200 period moving average and the lower zone of the bearish channel. The loss of these levels could lead gold to look for its next support level in the lower red band.

Gold Daily Chart

Source: Admiral Markets MetaTrader 5 - Gold Daily Chart. Date Range: August 15, 2019, to December 9, 2020. Date Captured: December 9, 2020. Past performance is not necessarily an indication of future performance.

In 2015, the value of Gold fell 10.4%, in 2016, it rose 8.1%, in 2017, it rose 13.1%, in 2018, it fell 1.6% and in 2019, it rose 18.9%. Overall, gold is up 28% in five years.

If gold has been one of those assets harmed by the announcement of the vaccines, oil has been one of the beneficiaries of this positive news. Since the vaccine announcements, it has reached levels not seen for 8 months.

This momentum has been reinforced by OPEC's agreement to increase production by 500,000 barrels per day from January instead of the previously planned 2 million, although initially the cuts were expected to be increased by 3 more months.

Technically speaking, so far in December, Brent has risen by 3% and over the past month by more than 25%, finally surpassing the high zone of the strong side channel and its 200 period moving average to over 49 USD. It will be important to see whether Brent will be able to pass the 50 USD level. In the event that it falls back below its previous resistance level (green in the chart below), crude oil could re-enter the laterality between the green and blue lines.

Brent Daily Chart

Source: Admiral Markets MetaTrader 5 - Brent Daily Chart. Date Range: August 2, 2019, to December 9, 2020. Date Captured: December 9, 2020. Please note that past performance is not necessarily an indication of future performance.

In 2015, the value of Brent fell by 35.12%, in 2016, it increased by 45.22%, in 2017, it increased by 18.66%, in 2018, it fell by 21.36% and in 2019, it increased by 25.20%, i.e. in those five years it rose by 14.38%.


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