This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
The first three quarters of 2016 have been all about recovery for the commodity markets, with the sharp sell-offs of 2015 largely being left behind for a more stabilised environment. The Chinese slowdown remains a concern, yet much of those fears have abated somewhat, with the decline in growth and demand largely behind us. Despite the expectation that a strong dollar means weak commodity prices, we have seen strength across both the greenback and commodity prices, highlighting the correlation can often be tenuous at best.
Looking ahead to Q4, we look likely to resume this recovery, with OPEC helping crude punch higher as gold continues to consolidate prior to the next big move.
Gold’s recovery has been miraculous, with a multi-year downtrend reversed since the bullish wedge breakout in Q1. Since then, we have seen a stepped approach, with two periods of consolidation. This current period takes the form of a descending triangle, which given the entry is bullish.
With price currently close to the $1300 mark that largely underpins this pattern, we are looking at a strong risk to reward for longs, given the expectation we will break higher from this pattern. That being said, it is worth noting the bearish breakdown in momentum, as highlighted on the stochastic oscillator.
With the stochastic breaking below trendline and soon horizontal support, this could provide us with a clue that we are about to break back below $1300 support. However, until that happens, there is a strong potential for a bullish break higher to end the year.