Levels to watch: gold, silver and crude

Commodities continue to fall as traders look out for the next major level of support.

Oil pipelines
Source: Bloomberg

Gold’s selloff looks set to continue

Any bullish resurgence in gold appears to have faded, with only as much as a whimper provided in response to the major two-month selloff seen since mid-January. Two dojis and a spinning top candle do not make for a convincing period of recovery and with ever-decreasing highs, the precious metal appears to be trading within a pennant formation. Given that this comes off the back of a downtrend, this is certainly a bearish pattern and one I expect to be broken towards the downside in the near future.

I continue to await the $1130 mark for gold, which is the four-and-a-half year low. Should the price break lower, I expect a major question to be asked around this level. However, for the time being I remain bearish and await the next move to the downside.

Silver flag broken

A flag formation in silver appears to have been broken, with the latest hourly candle retesting previous support and new found resistance. Silver is often seen to lead gold due to its more volatile nature and on this occasion, a break from the three-day flag formation could indicate an impending move lower from the pennant seen in gold.

While a break lower does appear likely, I am waiting for the price to close below near-term support at $1551 as this would mean the creation of a new intraday lower low. The bias remains to the downside, and the fact that recent bullish momentum has managed to muster so little in terms of gains, this makes me believe that the bulls are far outweighed by bears right now.

Near term I am looking for silver to return to support at $1529, yet much like gold, there appears room for more extended losses and thus the 1 December low of $1462 seems likely in the medium term.

Brent downtrend likely to continue

The deterioration in Brent crude prices over the past two weeks will no doubt worry producers around the world as much as it will boost consumers. The reason for this is that following the major four-month selloff throughout late-2014 and early-2015, many were hoping for a strong and long-lasting recovery. However, with supply continuing to increase and the likes of Iran expected to raise output should the US-Iran nuclear deal go through, there is a distinct possibility that the bottom may not have been hit just yet.

The 61.8% Fibonacci retracement at $5272 appears to have provided near-term support, but with lower highs and lowers lows continuing to be created, I think it is only a matter of time until we reach the more major support level of $5265.

Longer term, traders will be waiting to see if prices return to the almost six-year low of $4640, which if reached would likely bring significant support to the downtrend. I remain bearish and would only become more neutral if the price breaks above $5434 and $5492. This would indicate a possible move back to $6300.

WTI hits six-year low

WTI appears to be leaving Brent in its wake, having completed the move lower, creating a six-year low yesterday. Much like the gold/silver relationship, the WTI/crude correlation can occasionally provide direction or breakout information ahead of time.

The price currently remains around the substantial $4358 region, albeit marginally lower. Therefore, with the price pushing below the new resistance level, it provides a crucial bearish indication for the coming period.

From an intraday point of view, the 20-hour SMA can be utilised as a key source of resistance given that the price tends to keep returning to this average prior to another move lower.

As long as the price remains below $4358, I remain bearish and my next target is for a move to the key $4000 handle and the 23.6% Fibonacci extension at $3929.

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