Gold surges above $1300

A weak Dollar and rising geo-political tensions over North Korea are bullish for gold which surged through resistance at $1300/ounce. Target for the advance is $1400*. Rising Twiggs Trend Index confirms buying pressure. Reversal below $1250 is now most unlikely but would warn of another test of primary support at $1200.

Spot Gold

Target 1300 + ( 1300 – 1200 ) = 1400

The Dollar Index continues to test support between 92 and 93.

Dollar Index

*Target: 93 – ( 103 – 93 ) = 83

But the Dollar is falling fast against China’s Yuan. Breach of primary support at 6.60 and decline of the Trend Index below zero both signal a primary down-trend.

USDCNY

*Target: 93 – ( 103 – 93 ) = 83

Another major influence on gold is crude oil prices. Softer crude prices are bearish for gold but the latest decline is finding more support than the preceding three. Recovery above the downward channel and resistance at $50/barrel would signal a fresh advance.

Nymex Light Crude

Crude tests support at $45/barrel

Nymex Light Crude is testing support at $45/barrel. Breach would offer an immediate target of $40. Follow-through below $40 would signal another test of the 2008/2016 lows at $30.

Nymex Light Crude

The chart below plots long-term crude prices adjusted for inflation. Recent falls show real crude prices returning to their previous trading range (0.1 to 0.2) before the 2004 to 2015 “China boom”.

Nymex Light Crude/CPI

The 2004 to 2015 surge in crude prices is very likely a major cause of low global growth over the last decade. Return to the previous trading range would be a bullish sign for the global economy.

Crude falls below $50

June Light Crude fell sharply last week, ending below $50/barrel in response to rising US inventories.

June Light Crude

Respect of the lower trend channel would suggest that this is a secondary movement and the primary up-trend is intact. Breach of the lower channel would warn that the primary trend is weakening.

Crude at $30 per barrel?

Crude futures (Light Crude November 2015 – CLX2015) are testing short-term support at $44 per barrel. Breach is likely and would indicate another test of the recent low at $38.50. Failure of that level would offer a (long-term) target of $30*. Recovery above the descending trendline and resistance at $52 per barrel is unlikely, but would suggest that a bottom is forming.

WTI Light Crude November 2015 Futures

* Target calculation: 40 – ( 50 – 40 ) = 30

Volatile crude

Crude prices rallied sharply in the last few days, boosted by downward revision of US oil output and hints that OPEC may consider production cuts. October 2015 futures (Nymex Light Crude – CLV2015) tested resistance at $50/barrel before falling just as steeply on weak manufacturing data out of China.

Nymex WTI Light Crude October 2015 Futures

Expect another test of support at $38/barrel. Breach of support would offer a target of $26/barrel*.

*Target: 38 – ( 50 – 38 ) = 26

Long-term crude prices falling fast

Long-term crude prices are falling fast, with June 2017 futures (Nymex Light Crude – CLM2017) having broken through its medium-term target of $50/barrel*.

Nymex WTI Light Crude June 2017 Futures

* Target calculation: 56 – ( 60 – 54 ) = 50

The August 2015 Report from the International Energy Agency indicates that oversupply is growing. After the latest market turmoil, IEA estimates of global demand are also likely to be revised downward. Maybe that long-term target of $36/barrel** is not so crazy after all.

**Long-term target: 66 – ( 90 – 60 ) = 36

Crude fall continues

Decline of Nymex Light Crude September 2015 futures (CLU2015) is slowing as it nears the medium-term target of $40/barrel*. Narrow consolidation at this level would suggest a continuation of the down-trend.

Nymex WTI Light Crude September 2015 Futures

* Target calculation: 50 – ( 60 – 50 ) = 40

Long-term June 2017 Nymex Light Crude futures (CLM2017) are consolidating in a narrow range at the medium-term target of $54/barrel*. Continuation of the down-trend is likely but recovery above $55.40 would warn of a bear market rally (not a reversal). Breach of support at $54 would offer a medium-term target of $50**.

Nymex WTI Light Crude June 2017 Futures

* Target calculation: 60 – ( 66 – 60 ) = 54; ** Target calculation: 56 – ( 60 – 54 ) = 50

Expect crude prices to continue falling. The August 2015 Report from the International Energy Agency indicates that oversupply is growing. It is likely to take at least a year before balance is restored.

Crude fall continues

Nymex Light Crude futures (September 2015 – CLU2015) are approaching their medium-term target of $40/barrel*. Expect support at this level.

Nymex WTI Light Crude September 2015 Futures

* Target calculation: 50 – ( 60 – 50 ) = 40

Long-term June 2017 Nymex Light Crude futures (CLM2017) are testing the medium-term target of $54/barrel* — a premium of about $11/barrel over current delivery. Expect support at this level but the long-term target could be as low as $36**.

Nymex WTI Light Crude June 2017 Futures

* Target calculation: 60 – ( 66 – 60 ) = 54; ** Target calculation: 66 – ( 90 – 60 ) = 36

Crude downward slide continues

Long-term June 2017 Nymex Light Crude futures (CLM2017) is approaching its medium-term target of $54/barrel*, maintaining a premium of about $10/barrel over current delivery. Expect support at $54, but the long-term target could be as low as $36**.

Nymex WTI Light Crude June 2017 Futures

* Target calculation: 60 – ( 66 – 60 ) = 54

** Target calculation: 66 – ( 90 – 60 ) = 36

Will Iran deal nuke crude?

The nuclear deal with Iran is likely to increase supply of crude oil, especially in European markets, driving down prices.

Brent Crude August 2015 Futures

Brent crude August 2015 contract (CBQ15 above) is testing support at $56 per barrel. Narrow consolidation suggests continuation of the down-trend. Breach of $56 would signal a test of primary support at $53.

Nymex WTI Light Crude August 2015 Futures

Nymex (WTI) Light Crude August 2015 contract (CLQ15) is in a similar pattern, with medium-term support at $51 and primary support at $49 per barrel.

Crude breaks $54

Nymex Light Crude continues its sharp descent, with August 2015 futures breaking medium-term support at $54 per barrel.

Nymex WTI Light Crude

The next major support level is primary support at $44.

Nymex WTI Light Crude

Crude dives to $55

Nymex Light Crude continues its sharp descent, with August 2015 futures falling below $55 per barrel. Respect of $53 would indicate the (secondary) up-trend is intact, but breach would warn of a test of primary support at $44.

Nymex WTI Light Crude

Crude dives below $58

Nymex Light Crude closed below support at $58 per barrel, signaling retracement to test medium-term support at $53. Respect of $53 would suggest an advance to $68/barrel, while failure would warn of a test of primary support at $44.

Nymex WTI Light Crude and Brent Crude

 

June 2020 futures broke support, at $70/barrel, suggesting a test of $50/barrel*.

June 2020 Light Crude

* Target calculation: 70 – ( 90 – 70 ) = 50

Crude: Where next?

Nymex Light Crude plotted against CPI gives an historical perspective on current crude prices: high prior to China’s entry into the global energy market, but low relative to prices since then. Expect strong support at the 2008 low.

Nymex WTI Light Crude and Brent Crude

Has fracking permanently suppressed oil prices, or will production dwindle over time in response to lower prices? Oil well efficiency is rising as marginal wells are mothballed.

 

Production forecasts are rising.

 

Causing oil futures to fall. June 2020 Light Crude broke support at $70/barrel, offering a target of $55/barrel.

June 2020 Light Crude

* Target calculation: 70 – ( 85 – 70 ) = 55

Spot prices (Nymex Light Crude) continue to range between $58 and $61 per barrel. Reversal below $58 would signal retracement to test medium-term support at $54. Breakout above $61 is unlikely at present, but would signal a rally to $68/barrel.

Nymex WTI Light Crude and Brent Crude

Crude retraces

Nymex Light Crude encountered solid resistance at $60/$61 per barrel. Reversal below $58 would signal retracement to test the new support level at $54. Respect would indicate an up-trend, while failure of $54 would test primary support at $44. Brent Crude [green] is already retracing and likely to test support at $54.

Nymex WTI Light Crude and Brent Crude

Crude finds resistance at $60/barrel

Nymex light crude encountered resistance at $60/barrel. Expect retracement to test the new support level at $54/barrel. Respect would indicate a primary advance, while failure would suggest recent gains are no more than a bear market rally and another test of $44 is likely. 13-Week Twiggs Momentum below zero continues to reflect a primary down-trend.

Brent Crude and Nymex WTI Light Crude

Crude: Reversal or bear rally?

Inflation-adjusted crude oil prices are close to their 2008 low, but if we look back to the 1980s and 1990s, prior to China’s entry into the markets (apart from a brief spike in September 1990) that was the 20-year high.

Nymex WTI Light Crude over CPI

Nymex light crude rallied since breaking resistance at $54/barrel, but this does not necessarily indicate a reversal. Only retracement that respects the new support level (at $54) would confirm this a primary up-trend rather than a bear market rally.

Brent Crude and Nymex WTI Light Crude

Crude breakout: exercise caution

Nymex Light Crude broke resistance at $55/barrel, signaling the end of the narrow consolidation of the past few months. Some have heralded this as the end of the bear trend and start of a bull market.

Brent Crude and Nymex WTI Light Crude

If we examine the recent consolidation — shown here on June 2015 Light Crude futures — it is clear that it is broadening, with the second trough below the first, rather than rectangular. Peaks are likely to follow a similar pattern; so a higher peak does not necessarily mean a breakout. Broadening wedges tend to be unreliable reversal signals and I would wait for retracement that respects the new support level at $55 to confirm the breakout.

Nymex WTI Light Crude June 2015 Futures