Oil eyeing lows, gold catches a break

Oil testing lows on China growth concerns

Oil prices are pulling back once more on Monday and once again taking a run at those lows we saw mid-July and last week.

The sell-off has accelerated today but actually started last Thursday after WTI ran into a wall of resistance just shy of $70, which aside from being a psychological barrier is also a 50% retracement of the move from the late July highs to last week’s lows.

This doesn’t bode well for crude in the near-term, especially with risk appetite looking a little more negative at the start of the week and Chinese growth fears rising.

A move below $65 would see attention shift back to $60, a surprisingly large correction overall when just over a month ago it was not far from $80. But the near-term trend is very much against it and the Chinese near-term outlook is weighing heavily.

Gold leaps higher but challenges remain above

Gold is surprisingly thriving a week after a small flash crash sent it tumbling back towards $1,680.

Since then, the yellow metal has done well; a combination of an overexaggerated initial move being unwound and a softer dollar/lower yields giving it new life. The US consumer sentiment data on Friday was particularly good for gold as it sent US yields and the dollar sharply lower.

I think people had become overly bullish following a raft of good data and hawkish Fed commentary so when the profit taking came, it did so in aggressive fashion.

Naturally, the worst sentiment reading in almost a decade turbo-charged the move, which is why gold exploded back above the $1,740-$1,760 resistance zone and now finds itself flirting with $1,800 once more.

Unfortunately for the yellow metal, unless this is the first in a series of shocking economic numbers for the US, I don’t think it’s fortunes have drastically improved. It will struggle to break $1,800 and the fact that it marks the 50% retracement of the early June highs to August lows won’t help matters.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.