The beginning of the new week seems to bring a cooling down of moods on the main stock markets, and may also start a correction on the oil market with continued declines in gold prices. On the foreign exchange market we may observe a further drop in the USD.
On Monday morning, the stock market was in a mixed mood. After the initial drops there was a short-term rebound in Germany or the United Kingdom, while in France, Italy or Spain the main indices were still trading below Friday's closing. Futures contracts in the United States are also traded in red. From a technical point of view, the current cooling-off may take place after the very significant increases that we observed in November 2020 due to the effective COVID-19 vaccine. However, investors still seem to fear a sharp increase in infections and the effects of restrictions in Europe. The German Minister of Economy said that the number of cases of COVID-19 in most regions of Germany is still too high and people need to do more to limit their contacts in order to slow down the spread of the disease.
Meanwhile, the gold market has continued the correction, which has accelerated at a time when investors could see that it was time to withdraw their funds from the market, because the worst of the epidemic is behind us. It also seems that we are dealing with an outflow of hot capital, which entered the market in July. After many months of not continuing the upward trend, this capital may have become discouraged and is currently leaving the gold market, lowering prices. Currently, an ounce of gold costs USD 1775 and is the cheapest since early July 2020. Throughout November gold seems to be losing more than 5%, which is the biggest monthly drop of four years. However, since the beginning of the year, the rate of return has been over 16 percent. A factor that may help the gold market may be the cheap US dollar and signals from the Fed and the ECB about a further possible increase in the asset purchase program.
Oil could achieve its biggest monthly gain since May, as it seems to be rising over 25% in November despite today's correction. The WTI barrel currently costs USD 45 and the market is waiting for a decision after the two-day virtual OPEC + meeting. Preliminary talks were held this weekend, but no agreement has yet been reached on production policy for 2021. Additionally, if production cuts are not extended by the first quarter of next year, investors may still fear a lower demand for fuels due to still high numbers of coronavirus infections.
The U.S. dollar seems to be weakening on the currency market and the EUR/USD exchange rate is approaching 1.2000. The USD index futures contract has fallen to its lowest level since 2018, but this is not confirmed by the positioning of institutional investors, which is visible in the Commitments of Traders reports. It seems, therefore, that there is less and less willingness to sell the dollar at such low prices, and this may result in a correction of pairs from the USD at the end of the year or early 2021.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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