Gold and Crude: What's Next?
The markets saw some big reversals after the Federal Reserve met last week and lowered the Federal funds rate by 75 basis points, less than many had been anticipating. The U.S. dollar rebounded, and commodities sold off sharply. The markets are now fighting to decide where to go next, and it's been volatile. After a string of post-Fed gains, the U.S. dollar is falling back again this morning, and as a result, we're seeing many commodities rebound. I'm still a long-term commodity bull, but I'm not sure the recent correction has run its course in some of these markets.
Gold has regained ground lost last week, with the April COMEX contract closing up more than $16 an ounce on Tuesday, March 25 at $935. There is a double-bottom in the daily chart of gold that should offer support around $904. I would like to see closes in the April contract at $936.40, the 50-day moving average, to confirm the lows are in, and the market came close today. Confirmation in the way of a close above that level, and I think gold can move to new highs. However, I am not sure the recent washout is quite done yet, and I want to see some confirmation before I'd recommend stepping in. I think you could buy with a stop below the low on Thursday at $904.70. In the June contract, closes above $945 would signal a trade likely into the $970s. June gold closed at $939.70 on Tuesday, March 25.
Crude oil rose above $101 a barrel in the May and June contracts Tuesday, March 25, but has seen a lot of volatility. The market is trying to figure out where to go after falling some 11 percent from a record $111.80 a barrel on March 17. Talk of more poor economic data ahead this week has kept a lid on crude oil. I am a little bearish at this point in time, and I can see the May contract heading down to $96.80 a barrel, the 50-day moving average. If the market falls through that level, I see a possible drop to $86 or $85, where I'd recommend longer-term bulls consider scaling in on the long side.
I'm still a long-term commodity bull, but in any long-term trend, we have to face corrections, and play them strategically.
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Richard Ilczyszyn is a Senior Market Strategist with Lind Plus. He can be reached at 800-605-0095 or via email at rilczyszyn@lind-waldock.com if you have questions on this topic or to discuss specific trading strategies for your unique situation in this or other markets.
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