Oil Holding Its Gain While Gold Consolidates, European Markets Focused On Draghi

By Naeem Aslam
Think Markets

There is simply nothing exciting about the gold price. Mostly, it is the dollar story which is moving the market as investors are highly immune to geopolitical fears and being completely oblivious of it. Israel ranched up the tension over in the Middle East yesterday by attacking Syria, and the EU has stepped in to calm the situation. Despite that, there is still a significant shift in the Isralian military position over the borders and investors are not factoring this element in their portfolio.

This could be destructive. On the other hand, oil price is tracking the situation very closely and the only reason that we are seeing the prices inflated this much is not due to the supply concern, because OPEC could unleash the needed supply in no time. The reason that the prices are inflated is mainly because of the heightened tensions over in the Middle East and the situation could further flare up meaningfully.

In terms of gold price action, we are mostly consolidating towards the lower lows and this gives me an indication that it is highly likely that the next bigger move could be to the downside and if the support of $1300 breaks, we could easily see another $30 move after that. As for the oil price (Brent), I think the next major resistance level which everyone is looking at is the $80 mark

Investors over in Europe would be listening to Draghi’s speech and gauging his stance towards the monetary policy. The ECB president fuelled the European equity rally since their last meeting by adopting somewhat dovish stance again. That took the tole on the euro and the European indices reacted positively. European equity markets are set to finish another strong week and this would be the seventh consecutive week where the returns are positive.

The momentum looks stronger than the US markets, especially for the FTSE 100 Index. As we said earlier, a lot of this to do with the weaker currencies: Euro and Sterling. Both currencies have been under pressure as the expectations around the hawkish monetary stance for both central banks has subsided. Yes, the strength in the dollar index has a lot to of do here and it has also taken out an enormous amount of wind from the Euro and Sterling against the dollar.

Sterling bulls got their hopes crushed yesterday as the Bank of England gave no notion as to when they will increase the interest rate again. The bad news didn’t stop here, the bank also downgraded its growth and inflation forecast- the final blow by the bank. The governor of the Bank of England failed to hide his embarrassment yesterday that the bank was ahead of itself and it has tasted the reality now. The sluggish growth during the Q1 would likely to have spill-over effects in the Q2, but the governor did show some optimism for the bulls by confirming that another rate hike for this year is still on the table.