The Weekly : 2020 #48

Oil reaches 9-month high as hopes of recovery continue

Oil jumps 8% reaching a 9-month high as hopes of a recovery gather pace despite gloomy economic forecasts.

November 27, 2020 / 1 min read

Oil reaches 9-month high as hopes of recovery continue

Oil reached a 9-month high this week after U.S crude inventories fell and hopes continued to grow that a vaccine will lead to increased demand.

Economic optimism tends to be bad for gold and it behaved as expected; slumping nearly 5% and taking gold miners down with it. In the short term it could fall further, but the long term argument for owning gold remains a strong one.

Traditionally gold and bitcoin have been quite closely correlated, but given the direction they’ve both been going in recently that no longer appears to be the case.

Bitcoin looked liked it was going to set a new all time high but in end fell short, experiencing a sharp fall towards the end of the week. Significant corrections are normal for bitcoin. In 2017 it saw 5 corrections of 30% or more on its way to ~$20k, so a drop of 15% this week is nothing more than par for the course.

Bitcoin corrections 2017

A 30% move would see it’s price reach $13.5k so it could have further to go from it’s currently of $16.7k.

False dawn or real hope?

Best case scenario is that vaccination programmes prove successful and we get back to normality mid-2021. With oil moving higher and the S&P stubbornly close to all time highs, the markets are clearly pricing in that optimism.

The real economy is deeply damaged though. UK chancellor Rishi Sunak told parliament that the economic emergency had only just begun with GDP expected to shrink by 11.3% this year and unemployment predicted to surge to its highest level since 2009 in the first half of next year.

It doesn’t make a pretty picture.

With deaths due to the pandemic still rising, any delay or setback and confidence and sentiment could quickly falter.

The markets have a tightrope to walk. The question is whether they can hold their nerve.