Gold and Crude Oil Price Outlook: Will Prices Fall on Key Contrarian Signals?

[MongiIG]

GOLD, CRUDE OIL, TECHNICAL ANALYSIS, RETAIL TRADER POSITIONING - TALKING POINTS

• Retail traders continue betting gold and crude oil may rise
• From a contrarian standpoint, will this bode ill for them?
• XAU/USD eyeing key trendline, WTI downtrend in focus

Taking a look at IG Client Sentiment (IGCS), retail traders are predominantly betting that gold and crude oil prices may rise. In other words, they are net-long XAU/USD and WTI. IGCS can at times be a contrarian indicator. If this trend in positioning continues, gold and crude oil prices could be at risk down the road. However, are near-term changes in positioning aligning with the broader outlook?

GOLD SENTIMENT OUTLOOK - BEARISH

The IGCS gauge shows that roughly 84% of retail traders are net-long gold. Since the majority of traders are biased higher, this suggests that prices may continue falling. Compared to a day and a week ago, traders have boosted upside exposure by 6.76% and 6.90% respectively. With that in mind, the combination of overall and recent changes in positioning offers a stronger bearish contrarian trading bias.

TECHNICAL ANALYSIS

Gold prices are testing a potential rising trendline from early August. A breakout below it could hint at extending losses since November. This is as a bearish crossover occurred between the 20- and 50-day Simple Moving Averages. On the downside, 61.8% Fibonacci retracement at 1756 is in focus, followed by the 1721 – 1729 support zone. Immediate resistance seems to be the 38.2% retracement at 1802.

 

GOLD DAILY CHART

Chart Created in Trading View

CRUDE OIL SENTIMENT OUTLOOK - BULLISH

The IGCS gauge shows that about 70% of retail traders are net-long crude oil. Since most traders are net-long, this suggests that prices may continue falling. However, upside exposure has decreased by 5.94% and 10.51% over a daily and weekly basis respectively. With that in mind, the combination of overall and recent changes in positioning are hinting that crude oil may soon reverse higher.

 

TECHNICAL ANALYSIS

Crude oil prices remain in a near-term downtrend since prices peaked in October. A bearish ‘Death Cross’ remains in play between the 20- and 50-day SMAs, offering a downward technical bias. This is as prices consolidate around the 200-day line. Resuming the downtrend entails clearing the 65.10 – 66.39 support zone, exposing the August low at 61.76. On the flip side, pushing above the 20-day SMA and the midpoint of the Fibonacci retracement – at 73.57 – could open the door to a reversal higher.

WTI DAILY CHART

Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from December 14th Report

Written by Daniel Dubrovsky, Strategist for DailyFX.com. 15th December 2021.