Levels to watch: gold, silver and crude

Talk of a bottoming in the commodities ‘supercycle’ is all the rage, which is perhaps chiefly due to the abysmal performance of the asset class in recent weeks, but the bearish outlook doesn’t seem to have changed.

Silver bars
Source: Bloomberg

Oil continues to fall thanks to a reduction in tensions surrounding Ukraine and Iraq, while industrial metals are suffering due to a drop in Chinese demand. Precious metals have lost their allure thanks to a rise in Treasury yields and a surging US dollar. All this is unlikely to change, leaving the sector facing major headwinds in the final quarter.

Gold eyes $1215

The new week dawns with gold opening below $1200 for the first time since December 2013. Support seems to have been found at $1180, the lows of that month, but upside resistance is likely to be found at $1198 and $1209.

Any break through these levels targets $1215 and then the 20-day moving average at $1221, but bounces from the oversold zone have previously been treated as selling opportunities rather than the start of sustained rallies. Any break below $1180 targets prices in the direction of $1155, levels last seen in mid-2010.

Silver RSI still oversold

Although rallying today, the $17.15 level should prove to be something of a hurdle for silver. Any close above here on a daily basis provides the opportunity for a challenge of $17.50. We have seen a steady move upwards in the relative strength index but it is still oversold, a testament to how far the selling went last week. If the price drops through today’s low then a run to $16.05 cannot be ruled out.

For over a week now the 100-hour moving average has provided chances for the sellers to step back, with the latest test coinciding with a move into overbought territory.

Brent could bounce to 20-DMA

If Brent closes up today it will be the first such event in a week. The slump last week carried the commodity firmly into oversold levels, which sets us up for a potential bounce that may go as far as the 20-DMA around $96.90. Any close above here would target the 50-DMA at $100.75, and would mark the first significant test of this indicator in the current downtrend.

The 2012 low continues to be the first primary area of possible support, around the $88.40 area.

WTI could struggle to rise above $94.30

The weekly closing lows of 2013 held last week in WTI, providing the foundation for a bounce. Any move higher will, however, find difficulty in extending gains above $94.30-$94.70. Any daily drop lower targets the April 2013 lows at $86.

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