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. 

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.