Levels to watch: gold, silver and crude

Commodity markets bite back as recent losses are finally met with a moderate day of resurgence. Yet for how long?

An oil rig
Source: Bloomberg

Gold recovery is likely to be short-lived

What remains of any gold bull will be breathing a little easier today, as eight straight trading days’ worth of downside has finally been met with some form of upside bounce in the precious metal. Today’s support, found around $1148, perhaps should not come as such a surprise following substantial recent moves with the price closing outside of the daily Bollinger band for the past four days, indicating a highly extended period of downside.

However, we have seen this before and with the price not meeting either the November 2014 low at $1132, nor the lower ends of the falling wedge that have been in play since the initial major selloff in April 2013, I believe any further upside is likely to be short-lived.

Any move back above $1190 could give us a better idea this may be a premature recovery, but unless this happens I believe we could simply see this as a temporary retracement within a wider selloff, and I envisage $1170 and $1175 as potential areas to watch for a selloff down towards $1132 and $1117 areas.

Silver’s bearish outlook remains

Silver is also looking to catch a bid today, with early-morning trade leading the metal to a high of $1572. However, the existence of the 20-period simple moving average (SMA) on the four-hour chart seems to have stalled upside momentum, and with the current candle looking like it could take back some of those gains, a bearish tweezer pattern could yet form.

Much like gold, silver has come off the back of a significant period of downside, and thus some form of move higher would seem likely despite my overall bearish bias down towards $1465. Since January’s peak of $1850, the silver chart has seen two retracements hit the 61.8% Fibonacci level prior to selling off, and this would give us an upside resistance of $1628.

However, I do not see it moving that high, and should the current resistance at $1570 be broken I think $1609 would be more likely as this encompasses the 50% retracement and the dominant February support level. Overall my bias remains bearish until $1465 is hit, and given that the 20-period SMA on the four-hour chart has held up on three occasions in this recent downtrend, it will be the ability or inability to break above this today which will give direction for the near term.

Brent upside continues, yet $60.06 test will be key

Brent crude appears to be on its way towards posting a second consecutive daily gain today, which would be the first occasion since this time last month. With the stochastic moving into a more bullish manner, rising from oversold and seemingly about to cross, alongside an MACD histogram, which is rising towards parity, there are signs that we could see some strength come back into the market.

However, there remains a major hurdle at the $60.06 level, the 20-day SMA. Despite its close proximity to price action, we have only seen a daily close crossing above or below this indicator twice in the past eight months. Should this break above $60.06 occur, I would expect a swift move higher towards $6.300, yet prior form dictates that we are likely to see this form resistance and give way to further losses where the 200-day SMA ($55.29) would be our initial hurdle.

WTI upside also looks limited

WTI is showing a similar kind of story, with a morning in the green moving us towards a position where in all likeliness we will begin to sell-off once more.

Since the early-February spike to $54.40, we have seen lower lows and lower highs establishing a falling wedge formation. Given yesterday’s third touch on the lower end of this pattern, it comes as no surprise that we are now moving higher and thus I believe any move back to $50.40 would likely be sold into. As this also coincides with the 20-day SMA, this gives further credibility to the level.

However, be aware that a falling wedge in a downtrend is typically setup to be broken towards the upside and thus can be seen as a potential reversal signal. Consequently, should we see a break out of this pattern, I would be looking at $54.00, which if broken would likely lead to another major leg higher. 

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