Levels to watch: gold, silver and crude

Further slides in oil, as well as increasing speculation regarding a round of quantitative easing from the European Central Bank, result in markets seeking safety.

Oil barrels
Source: Bloomberg

Gold prices rally as markets seek safety

Monday’s strong support for gold has continued into Tuesday’s session with the precious metal adding a further 0.58% during the London open session. This has seen a breaking of a 26-month downtrend, with gold currently trading at $1,238. The short-term move higher in the precious metal came as oil prices saw yet another day of increased selling activity, adding to existing deflationary concerns and prompting some investors to re-asses a possible rate hike in the US as well as a possible bout of QE from the ECB. This has become increasingly likely following a worse-than-expected reading in the European CPI last week.

Having posted a daily high of $1,244, gold prices have since broken below the intermediate downside target of $1,239. Should this level turn to resistance, it could well result in a re-testing of $1,232. Further upside is likely to be capped by the 200-day moving average, which is trading at $1,245, but should this level be broken could result in a move to $1,248.

Silver outperforming

Silver prices started the day spritely adding 2.12% with prices currently trading at $16.92, as investors seek to allocate capital in perceived safe havens. This has been triggered by growing speculation over a possible round of QE in Europe, and a continuing slide in oil prices which are exacerbating fears of a global deflationary environment.

Silver prices appear to have found short-term support at $16.91, which, if held, could bring into play $17.11. However, the current move has entered overbought territory, posting a reading of 70 in its relative strength index, which suggests that a pullback could well be likely. Should a break below its current support at $16.91 be seen, a re-testing of $16.80 becomes the next clear downside target; however, should the previous bullish trend reassert it is likely that a move to a fresh high of $17.11 could well be achieved.

Brent prices remain unsupported

Brent prices continued to tick lower, posting a near-multi-year low of $46.54 on Tuesday. This came at a catch-up time for the market in terms of pricing-in growing oversupply fears, following a move from OPEC to maintain its 30 million barrels per day production despite a backdrop of global economic uncertainty.

The continued move lower has resulted in a deep oversold reading of 15.4 being seen in Brent, which could now see a pullback to previous support-turned-resistance at $48.19. If broken, this could see a testing of the 50-day moving average, which is currently trading at $49.48. However, should topside resistance hold at $48.19, a resumption of the bearish move is likely to be seen with downside targets of $45.21.

Oversold WTI could see a short-term bounce

WTI prices also took out a fresh low on Tuesday, posting $42.22 on the back of unchanged fundamentals. These are unlikely to shift anytime soon, with OPEC unwilling to curb production levels amid weak global demand. The sharp move lower has now seen a deep oversold reading in its RSI of 19, coinciding with price action, achieving its downside support at $44.35.

Much like Brent prices, WTI is likely to see a short-term pullback, which could see a re-testing of $45.36. However, with fundamentals unchanged, this is likely to be short-lived, resulting in the resumption of the overriding bearish trend with possible downside targets placed at $43.30. 

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