Wednesday June 21, 2017 14:43
(Kitco News) - Gold is seeing a bit of a reprieve as a sharp drop in oil prices is spooking financial markets, according to analysts.
In commodity markets, crude oil is attracting the most investor attention, as prices fall to their lowest level in seven months, trading at $42.65 an ounce, down 2% on the day. According to reports, the oil market is seeing its worst first-half year performance in almost 20 years. Prices are down more than 20% from the start of the year.
Further weakness in oil prices could continue to support gold as weakness in the energy sector raises growing recession concerns,analysts said. August gold futures settled Wednesday’s session at $1,245.80 an ounce, up 0.18% on the day. At the same time the S&P 500 is down 0.15% on the day at 2433 points.
“The energy sector is a big contributor for the U.S. economy and these low prices are hurting the sector,” said Sean Lusk, director of commercial hedging with Walsh Trading. “The energy sector has the potential to drag down the S&P 500 and that will be good for gold.”
Lusk said that if oil breaks below the November lows, the next target would be around $40, representing a one-year low. He added that there are concerns that crude will eventually hit new multi-year lows.
“Gold is holding good support above $1,240 an ounce, but we really need to see lower equity prices if it is going to push past $1,300,” he said. “We could see that happen if lower oil prices continue to spook investors.”
Bill Baruch, senior market strategist at iiTrader, agreed that slumping oil is a boost for gold. He added that while a lot of the selloff in crude is related to growing supply, there are growing issues on the demand side.
“We are heading into the busiest seasonal period for oil and demand has been pretty low. That is a problem when you have this massive supply glut,” he said.
Todd Horwitz, chief market strategist of BubbaTrading.com, is also optimistic on gold in a low-oil price environment.
“We aren’t seeing any growth in the economy so where is the demand for oil going to come from,” he said. “Bond prices are heading higher on growing economy concerns and that will ultimately good for gold and silver.”
Looking at current price movement, Baruch said it is encouraging that gold is holding initial support at $1.240 an ounce; however, he added that he would like to see a drop to $1,230 an ounce, as that represents a major support/retracement level.
“However, in this uncertain environment it makes sense to buy gold after a 5% correction from a major swing high,” Baruch said. “I do see good value for gold at these levels.
By Neils Christensen
For Kitco News