Levels to watch: gold, silver and crude

The end of QE has not been good for commodities as an asset class, as the US dollar takes off once again. Gold in particular has been hard hit, and is now within easy distance of the $1200 level.

Mining trucks
Source: Bloomberg

There has been something of a reckoning in commodities over the past 24 hours. Gold’s only real hope was that the Federal Reserve would leave $5 billion or so in QE and make cautious noises about another downturn in economic growth. They did neither of those things, and in fact struck a far more optimistic tone than had been expected. Particularly noteworthy was their observation that the ‘underutilisation [sic] of labor [again, sic] is gradually diminishing’.

The net result is that the dollar is moving up again. With GDP on the cards this afternoon we could see more losses here if the number (expected to be 3%) is ahead of expectations. The market is adjusting itself to life without QE and the stronger dollar that implies. Good US data means a potential for an earlier rate hike, which would give the commodities class another shove lower.

Gold still suffering

Although off the lows so far this morning gold is still suffering heavily, with a move back to the early October lows around $1185 looking likely. A steady decline in the daily relative strength index shows that the sellers still have the upper hand, although we may see some skittishness ahead of the psychological $1200 level.

The hourly chart is flashing an oversold reading on the intraday RSI which could suggest a bounce is due, possibly taking the price back as far as $1212. Even a push back to $1220 is still likely to be interpreted as a selling opportunity. Only a real move back above $1240 is going to change the dynamic here.

Silver below $17

The attempt by silver to decouple from its more expensive cousin has come to a sticky end, with the price dropping back below $17. As with gold we are oversold on the hourly chart, with a reluctance so far today to move below $16.80. Targets below this level include the October low at $16.74 and then $16.68, while any rally must, I note with some exhaustion, challenge the July downtrend that has acted as the nemesis of any moves higher. Thus the target on the upside for now is $17.15.

Brent finds support at $85.10

Two days of moves higher in Brent have come to an end, with $88 marking the limit of its ambitions yesterday and thus the target for any move upward in coming days. We have slipped below the 50-hour MA and are now targeting the $86 zone, around the 200-hour MA. Below this support may be found at $85.10 and then $84.60.

WTI slips below 200-hour MA

The picture for US light is even less encouraging, having slipped below the 50-hour and 200-hour MAs this morning. Targets on the downside are now $80.30 and $80 itself, while a move higher would point towards possible resistance at $82.90 and then on to $83.70.

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