Levels to watch: gold, silver and crude

The dollar basket has been stuck in rather a tight range over the past number of trading sessions and this has been felt in the commodity suite. 

Oil pipes
Source: Bloomberg

Ahead of the Federal Open Market Committee minutes tomorrow the likes of oil and gold are consolidating and, akin to a tourist arriving in Bank station, lack the wherewithal to decide on an overall decision until the Federal Reserve’s guidance is known.

One could say that the short oil trade is looking a little crowded too, so a squeeze in the near term cannot be ruled out.

Gold supported by $1222

The failure to break above the 50-day moving average last week has resulted in a decline for gold prices. Still a fair distance away from the $1180/oz lows, the metal is finding support at $1222, and the price is clustered around the 38.2% retracement from the $1180 lows to the recent $1255 highs.

The 50-hour moving average is holding intraday moves back, and it looks like we will remain rangebound with $1234 at the peak and $1222 at the base until a catalyst comes to light. We could expect a measured move in the price should either of these levels fail a test.

The downtrend resistance from the October 2012 highs remains the key to any additional upside now, and only a concerted break through $1260 would change the bias. A break above $1240 could see gold test the downtrend level.

A move back through $1210 would put the bias on a return to the lows.

Silver trading sideways

The lack of momentum in silver saw it give up the ghost at $17.80 recently – this represents the 23.6% retracement from the $21.50 highs to the recent lows at $16.67. The downtrend resistance coming in at $17.50 would need to be taken out if the overall downside is to be reversed even provisionally.

Sideways action remains the order of the day for now. A break through $17.00 would ultimately be the nail in the coffin in the near term and send the price back towards $16.87 then $16.67. Ideally a break above $18.00 is required if we are to see any real investor interest.

Intraday, we are witnessing a cap on prices with the 50- and 100-period MA on the four-hour chart conspiring, but with the positive divergence on the relative strength index on the same timeframe, a break above the $17.32 level could target the top end of the wedge formation at $17.57.

Brent could challenge $87 level

Goldman Sachs is among a slew of brokers that have indicated that oil prices in 2015 are set to head even lower. The bank has cut Brent to an $85 average for next year from $100, while WTI has been shifted down to $75 from $90. The triangle formation arising from the $82.98 lows may well see the upper band tested which would then challenge $87. Big resistance will come in at $87.60-70 with the 100-period MA on the four-hour chart. This metric has been a barrier to upside since the middle of August.

WTI could break higher

The $80/bbl level marks the line in the sand, and it seems that despite several attempts to puncture this level it is still an attractive level for buying in. A move down through here, with a daily close, would see the next available support at $77.30 come in.

The rising RSI, with a bullish divergence on the daily chart, suggests that we could break higher from here. The recent range has had $83.60 at its peak, and so a break above the 50-period MA on the H4 chart/200-hour MA could see oil prices bounce back towards this level. We are currently at a crossroads here at $81.60 and while the RSI on the hourly chart is looking a tad overbought, the culmination of the three major averages on the same timeframe could allow a set up for a larger move northwards. Intraday support comes in at $81.13 then $80.86.

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