Levels to watch: gold, silver and crude

Precious metals spike as crude looks to turn lower.

Oil field fire
Source: Bloomberg

Gold spikes to three-month high
The gold bounce we expected came through over the past two days, bringing price back towards the upper level of a range that has been respected for almost two months. The initial sell off from just above the resistance zone of $1224 could spell a retracement lower. Given the ranging we have seen recently, that is what I am looking out for.

However, I do expect gold to emerge from this channel to the upside and thus any break and close above $1224 would bring that bullish outlook to the fore. Until that happens I look for a move lower towards $1178.

Silver breakout signals bullish intent
Wednesday’s break higher on silver provided a close above the symmetrical triangle that has been in play throughout 2015. Given the size of the recent move, I could see some retracement coming in, especially with the 50-week simple moving average capping yesterday’s move to the upside.

Given the breakout, I do expect a move towards $18.22-18.50. Let’s not forget that silver hasn’t enjoyed more than three consecutive green days since June 2014, so Monday could prove too much an ask and could retrace.

It is worth bearing in mind that a move above $18.50 would signal a potential long-term bottom in silver and could start a long awaited recovery. On another note, the breakout seen in silver, could lead us to believe that the consolidation seen in gold could also breakout higher due to the correlation between the two – silver often leads gold.

Brent fails to create new high
The recent resurgence in brent crude appears to have been capped at $68.50, approximately $1 short of the May high. That inability to create a new high is crucial to the notion that we may have topped off and could be seeing the root of the next leg lower.

For that notion to gain momentum, I would need to see the lower high matched with a lower low. Thus the following trading days could have significant implications for the coming month.

Intraday charts show lower lows and lower highs being created and therefore I expect us to move lower once more today. Last week’s shooting star candle coupled with a MACD histogram which is seemingly topping off also gives me confidence that we are set to move lower over the medium term.

WTI triangle in play
Alongside brent, light crude has created a new lower high and we await the creation of a new lower low to point to a potential market top. For now, price action is trading in a tightening range and is forming a symmetrical triangle formation.

I expect to see the breakout towards the downside and early selling is pointing towards the likeliness of a day in the red. Any significant move lower is likely to see support come in should it reach $58.81 with a move below $58.14 being the crucial move needed to provide confidence of a longer term sell off.

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. 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. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.