Gold and Oil Prices Head in Opposite Direction as Europe Faces Lockdowns

By Mariliana Fotopoulou Monday, November 2, 2020

Gold prices are traveling higher, while crude oil prices are heading in the opposite direction as numerous European countries enter the second phase of lockdowns. Germany’s Angela Merkel recently warned of a “long and hard winter” in case strict lockdown measures are not introduced.

Moreover, traders are watching the latest polls closely ahead of tomorrow’s elections in the United States.

Gold Attracts Attention in the Risk-Off Trading Sentiment

Gold prices went up today as investors’ concerns mount amid the rising number of COVID-19 cases and ahead of tomorrow’s presidential elections in the US.

“We are seeing something of a resurgence in safe-haven buying,” said Harshal Barot, a senior research consultant for South Asia at Metals Focus.

Spot gold prices currently trade 0.59% higher at $1,889.00 per ounce. Gold prices are higher despite gains made by the US dollar as well, which clearly indicates a risk-off sentiment ahead of tomorrow’s crucial elections in the United States.

“The longer-term view is bullish on expectations that we are going to get a large stimulus deluge from the US, which ultimately should weaken the US dollar and send gold higher,” said Stephen Innes, head global strategist at financial services company Axi.

Gold prices are also trading higher as numerous countries across Europe have gone into Phase Two lockdowns today. France and Germany initiated the process of tightening anti-COVID-19 measures before other European countries, such as the UK, Spain, Italy, and Portugal, followed suit.

Michael Gove, the UK Cabinet Office minister, warned yesterday that although a new lockdown — if approved by the Parliament on Wednesday — is likely to end on December 2, there are no guarantees this will happen on this day.

At this rate, Gove says, all hospital capacities will be full by December 4.

"Every available space and every available corridor taken [by December 4]," Gove said to BBC.

As a result, gold traders are evidentially adjusting their bets according to the latest assessment of the risk associated with financial markets.

“Gold traders are worried that these lockdowns could lead to deflationary pressures... gold’s next trade is really for a reflation trade,” Innes added. In theory, a reflation is not supportive of gold prices.

Oil Falls on Energy Demand Concerns

In the opposite scenario, crude oil prices are heading lower today as new lockdown measures have raised concerns of low demand for energy products. Crude oil prices traveled into the negative territory for the first time ever earlier this year as the demand for the “black gold” collapsed.

Crude oil prices fell about 6% this morning before erasing about half of these losses to trade 2.5% in the red at the moment.

EU member countries, including France, Germany, and the UK, have reintroduced lockdowns to curb the fast-spreading second wave of the coronavirus.

Vitol, an energy and commodities trader, is projecting demand at 96 million barrels per day (bpd) during the winter period.

“A lot of traders are now looking at the US and their rising infection rates and wondering if Europe is providing the model for what will happen in the US in the coming weeks,” Michael McCarthy, head strategist at CMC Markets, told Reuters.

The Organization of the Petroleum Exporting Countries (OPEC+) has recently announced its decision to reduce oil output by around 7.7 million barrels per day (bpd) to support prices. Russia, one of the world’s largest exporters of oil, saw its output rise to 9.98 million bpd in October from 9.93 million in September.

“The demand is a big concern and the inventories are good enough. [The] US is actually seeing [a] good amount of inventories. Also there is no sign of demand recovery because of on-going COVID lockdowns. We have seen OPEC also easing out its supply cuts so that is also adding to the inventory that we are already seeing,” Sunil Katke of Axis Securities told CNBCTV18.

Summary

The number of European countries that are reinstating lockdown measures is increasing by the day due to the rapid rise in numbers of new COVID-19 infections, helping gold to trade higher and sending oil prices lower on energy demand concerns.

Investors are concerned that new lockdowns will have a profound impact on economies and businesses as the world shifts its focus toward tomorrow’s election in the United States.

About the Author


Headshot for author Mariliana Fotopoulou

Mariliana has an MSC in consumer analytics and business strategy. She has a special interest in fast-moving industries and big data.

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