Gold, Silver, and Oil: What Are The Fundamental Catalysts?

Oct 06, 11:11 am
Commodities

For the past few days, commodities have been declining notably on the back of a stronger dollar, which advanced to the highest level in 4 weeks, reaching as high as 96.16 (USD Index). This move is backed by the recent improvement in some of the economic releases. Yet, the major news - US Jobs Report - is due on Friday, which is set to confirm the current rally or change the outlook to negative again. That will only happen if the jobs report surprises the market with a slowdown. Below, we will discuss the recent movement in Gold, Silver and Crude Oil, speculating the upcoming trends.

Gold

gold6october2016

Gold peaked in June at around $1374 as the Federal Reserve delayed the rate hike, causing the US Dollar to fall back then, declining all the way back to 93.0. Since then, Gold has been trending gradually lower, trading within a downward channel that is shown on the chart. There were many attempts for a breakthrough that channel but without any chance.

This week, Gold lost more than %5 since Monday, reaching as low as $1261 on Wednesday. Despite that, traders need to be very careful over the next few hours, as Gold has already retraced by 61.8% from the recent rally (from May 30th low to July 6th high) at $1266. This level represents the Fibonacci Golden Ratio, which is seen as a key for the medium term upside trend. Only a weekly close below that support would deepen the bearish outlook. Otherwise, another short-term rally could be seen to retest $1300 mark.

Silver

silver6october2016

Silver has almost the same scenario as Gold. Silver peaked in June of this year at around $21.10. Since then, it has been trending lower gradually, with some attempts to rebound above the $20 mark but without any chance. This week, silver lost more than 11% so far, trading around $17.70.

However, Silver is still trading above this year's uptrend line which is also shown on the chart. In addition, it retraced by more than 61.8% Fibo retracement and is still trading around that level, which should be watched very carefully over the next few hours.

In the meantime, from a technical point of view, a rebound is more likely, but it definitely needs a catalyst to do so. This could either come from negative economic releases or lower stocks on high risk. The uptrend line remains solid so far at around $17.40; therefore, the current bullish outlook remains unchanged as long as it closes the week above that support.

What Are The Fundamental Catalysts For The Upcoming Move

As noted above, everyone in the market is awaiting the key US Jobs Report on Friday, which is likely to be the catalyst for next week’s trends. Why? Because the Federal Reserve depends on job creation and wage growth to raise rates. Better than expected data would increase the chances for a rate hike in December.

In return, commodities may lose more value and the bearish outlook might resume for Gold and Silver. On the other hand, no wage growth accompanied by a slowdown in job creation would decrease the possibility of a rate hike by the Fed in December. In return, buyers will rush back into safe haven assets.

Crude Oil

Crude Oil, including Brent and West Texas, has been advancing sharply since the latest OPEC members decided to cut their daily production. Despite the fact that we will not have any details until November, further gains could be seen as traders price in their estimates and hopes rather than the market's facts and figures.

Yesterday, US Crude Oil inventories came in with a surprise deficit, allowing WTI to test its $50 mark without a clear break above that resistance. From a technical point of view, WTI Crude Oil is set for another bounce. Yet, a break above $50 is still needed to clear the way for further gains. Otherwise, another leg lower could be seen back to the $48.50 support area.

Levels To Watch

Symbol S3 S2 S1 Pivot R1 R2 R3
Gold 1246.96 1254.13 1259.66 1266.83 1272.36 1279.53 1285.06
Silver 17.051 17.318 17.506 17.773 17.961 18.228 18.416
Crude Oil 48.42 48.76 49.29 49.63 50.16 50.50 51.03
Copper 2.135 2.145 2.150 2.160 2.165 2.175

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Nour Eldeen Al-Hammoury

Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.