Commodities Set To Gain In 2020
After 2019’s stellar equity market run traders are wondering what comes next? When it comes to the equities markets the outlook is not great. Equities may continue to rise but the technical don’t support that idea and worse, the odds for a major correction are growing every day. Despite this, and aided by the Phase One Trade Deal (among other things), the commodities market is set to rise. In particular, gold and oil are poised to make double-digit moves higher in the first part of the year.
Gold Shines While Dollar Declines
Gold prices got a boost earlier in the year when the FOMC began its “midcycle rate adjustment”. The price of spot gold moved up to a six-year high because of this and that movement is not yet played out. While the FOMC has ended their short round of policy easing so too have other central banks. The BOE, ECB, BOJ and others are ready to act as needed but also content to “wait and see” what happens next. Economic data from around the world, while weakened from 2018 showed some stabilization in the second half of last year and that my friends is the basis of what will drive this trade.
The Phase One Trade deal is going to take a bucket-load of uncertainty out of the market. With uncertainty gone businesses will be able to refocus on growth and investment. With that paradigm in place the risk-on trade will come back to the fore and when that happens the dollar is going to move lower. A look at the DXY confirms this view, the dollar index is setting a new low even now and helping global currencies like the EUR move higher. The weekly chart of Gold prices is rather bullish, too, moving opposite the dollar like most other regularly traded commodities.
At present, traders should look for gold to move up to the $1560 level and what is now key resistance. The indicators are consistent with a shift in momentum that should take prices up to that level at least. A break above $1560 will be the signal for longer-term and new trades as it will open the door to a much larger move. Once $1560 is breached the next targets for major resistance are $1600 and then $1800, just shy of the all-time record.
Oil, The Dollar, And OPEC
The same forces moving the dollar and gold will have a bullish impact on oil prices too. More than that, increasing demand for energy spurred by the Phase One Trade Deal will help them move higher. Add to this OPECs desire for prices to be higher and their renewed efforts to control prices and the odds of a major rally become compelling. The target for oil prices now is near $64, about 6% above today’s trading level, once that is breached (if it can be) the next target is near $66.