Levels to watch: gold, silver and crude

Gold retests trendline for possible selloff, yet silver bounce muddies the picture.

Gold bars
Source: Bloomberg

Gold breakdown sees bounce back to $1178

The breakout below $1178 last week provided a bearish indicator, representing the first close out of this range for over a month. Typically, a breakout of this kind would be better served by waiting for a pullback to then enter the trade at the breakout point, and this is what has come to fruition today.

The recent bounce higher has brought the price back to $1178, and thus I am bearish as long as the gold price is below $1182. This gives me a small amount of room to maneuver yet also a very good risk to reward ratio.

We have seen the descending trendline broken recently, yet with the stochastic around overbought, I expect to see this level respected. Downside support would likely first come in around $1169 followed by $1162.

Spot Gold chart

Silver reaches bottom of triangle, yet we await signal of bullish reversal

Silver has finally reached the lower end of the triangle, at which I would ordinarily expect the bulls to come back into play. However, bearing in mind the move we have seen in gold, I believe either the bearish view of gold or the bullish view of silver is likely to be wrong, and therefore I await a signal that this is the case.

Despite the bounce seen overnight, Silver has failed to create a new high and consequently I would need to see a move above the $16.14 area to gain confidence that the recent descending trendline is negated. Until that happens, I remain bearish in accordance with the gold outlook, with the main test being the ascending trendline of the triangle around $15.91.

Spot Silver chart

Brent tentatively breaks back into the falling wedge

Brent crude has finally managed to break back into the falling wedge that has been in existence throughout the past month. Despite this move, the initial signs point towards the 50-period SMA (four hour) providing near-term resistance. However, while we remain above the trendline, I expect a move back towards the upper level of the wedge (currently $64.52) which also coincides with the 100-SMA.

That being said, with the MACD histogram turning over, alongside a clearly overbought stochastic, there is a good chance of a move back below the wedge, at which point I would be looking for a move below $62.46 which would point to a resumption of the move lower.

Brent chart

WTI consolidates within the middle of the broadening formation

The recent bounce higher has led to a short-term retracement and we are awaiting the next move. On the four-hour chart, it is difficult to really gauge where the next move will take us. I remain bearish overall and the daily MACD histogram is pointing towards a move higher. For that reason I wouldn’t be surprised to see the next move go higher, yet the fact is that we are in more of an unknown place. As a result I would see it better to take my lead from Brent, and expect a similar move in WTI. Overall I am bearish and do expect to see us move back towards $55.73 in the near future.

WTI chart

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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.