Commodities report: gold, silver and crude

Dollar weakness brings a bounce for commodities, yet the question is whether this is a temporary bounce or the beginning of something bigger.


Gold sees bullish break back into long-term wedge
Gold is today defying the bears by breaking back above two crucial resistance trendlines; one medium-term (one month) and one long-term (two years). This comes following a break higher in silver, which completed a bullish double bottom formation.

However, much of this sentiment is likely to be driven by gold weakness coupled with the fact that gold and silver were at a crucial resistance level which means that a move higher was always likely to be more volatile than other markets.

The interesting thing will be how long this move higher can be sustained. The most crucial resistance point in view is at $1132. Should we see a close above $1105 today, I would expect this to provide a bullish outlook for the week for a move back to $1132.

That said, given the massive selloff that led to our recent predicament, there will remain a certain degree of skepticism to any rally and thus any move back to $1132 would likely be sold into.

Silver sparkles once more following double-bottom break
Yesterday’s spike higher in silver gave welcome reprieve for investors following the six-year lows seen earlier this month. The break above $15 sparked surge in the price of silver owing to the completion of a double-bottom formation. This double-bottom provides us with a target of $15.60, which coincides perfectly with the April swing low.

It is worth watching out for whether price can break above the 50-day simple moving average which provided resistance on 18 June. Thus it is worth bearing in mind that any upside has the possibility of selling off again at the 50-day SMA (currently $15.42) or $15.60 resistance levels. Only with a break above both of these levels would I gain any sort of confidence that this period of upside will last.

US light approaching crucial support zone to dictate sentiment
US light crude is looking like the likely driver behind crude oil prices this week, with price approaching an absolutely crucial support zone between $43.58 and $42.64. This zone represents the area between the two major lows of 2015 to date and given the sharp selloff we have seen over the past two months, there is a possibility that buyers could come back into the fold soon.

Should this not occur, the next support level to watch would be provided by the descending trendline of those two major lows, which would be around the $40 handle.

The stochastic oscillator has been bouncing from the 3.6 level, which has typically been the reversal point historically. This does not mean we certainly will see a bounce in price given the trend in place, yet momentum is certainly expected to shift in some way around this area.

Should we see a bounce higher, I would be looking for a move back towards $49.50. Alternately, a daily close below $42.64 would bring a likely move towards $40 and even possibly $37.73 (Fibonacci expansion). It will be worth watching the likes of the four-hour charts for signs of a reversal (double bottoms, etcetera).

Brent selloff also under question as major support nears
The previous major low in Brent crude came in mid-March, following a selloff earlier than month. While this coincided with the 61.8% retracement, it was the fact that WTI had hit the previous January low that I believe sparked a round of buying for both Brent and WTI.

On this occasion, we have both types of crude approaching the January low, which gives me even more of a feeling that we could see a bounce. The sheer size of the move lower over the past two months provides us with a high likeliness that any bounce higher would be of a decent size.

However, given that trend, I would also be aware that we need to see significant signs of a reversal higher. Recent intraday price action has provided new highs and we watch for now to see if there could be a new higher low.

However, for now the downtrend remains in play and the support level of $46.40 is absolutely the most important level to watch. A daily close below that level could bring another bout of selling for the black stuff.

Yet I would also be aware that with WTI and Brent at or around massive multiyear support levels there is a good possibility we could see crude start to bottom out for a decent sized recovery. Either way, things could get interesting for oil this week.

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