Gold and crude oil have pulled back marginally after Friday’s mammoth gains, presumably on stretched short-term positioning and relief there wasn’t a major escalation of the Israeli-Hamas conflict over the weekend. However, given how quickly sentiment can change and the level of risk we’re confronted with, it’s difficult to see crude and gold being anything other than buy-on-dips prospects until we see a de-escalation of hostilities. That’s highly unlikely over the short-to-medium term.
Gold looking heavy despite geopolitical risks
Looking at gold on the hourly chart, Friday’s 3.4% rally stalled at $1933, a level which has acted as support and resistance on numerous occasions in recent months. It’s also the current location of the 200-day MA. It has since pulled back around $10, finding bids just above minor support at $1919. It looks heavy despite the conducive geopolitical environment, likely reflecting a bounce in US equity futures as earnings season begins to ramp up. However, it’s unlikely earnings will be anything other than a secondary consideration should the conflict in Israel and Gaza spread to other nations around the region.
Should support go at $1919, there’s every chance gold could move back towards more pronounced support at $1900. For those considering a short trade on a potential break, a tight stop above $1919 will offer protection against a reversal. Should $1919 hold, it will provide the opportunity to enter longs targeting a move towards $1933 and potentially $1946. A stop below would offer protection.
From a long-term perspective, until we see a de-escalation of the conflict, gold remains a buy on dips trade, especially with directional risks for real yields now far more balanced than seen in prior years. Dips towards $1900 and $1885 offer improved risk-reward for potential longs given the current environment.
Crude consolidating on Friday's big gain
Relative to gold, the price action in crude looks more constructive on the hourly chart with WTI continuing to attract bids on dips towards support at 8590. For those considering establishing long trades, there’s several resistance levels located nearby at 8715, former uptrend support at 8745 and 8782. If they were to be overcome, it would open the door for a move towards 8765.
-- Written by David Scutt