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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.