Crude Oil to Move on Growth Outlook, Gold a Safe Haven for Now

Commodities – Energy

Crude Oil to Move on Growth Outlook

Crude Oil (WTI) $75.59 // +$0.20// +0.27%

Commentary: Crude oil is little changed in overnight trade after falling dramatically last week. Crude shed over $6/barrel, or 7.5% over four sessions, as global growth concerns reemerged following cautious comments from the U.S. Federal Reserve. This week is likely to feature more of the same consternation surrounding the state of growth around the world, but with prices notably lower than they were a week ago, there is always the possibility of an oversold bounce. Whether prices can muster such a bounce will be determinant on whether the economic data that is released in the coming week allows for a bit of optimism. Data that is interpreted as suggestive of a coming double dip recession will likely send prices even lower than they are currently.

Because the recent focus of the latest downtrend has been the slowing of the U.S. economy, traders will be keeping a close eye on economic data out of the world’s largest oil consumer. On Monday, we will get figures for the NY Fed Empire Manufacturing Index, which is expected to come in at 8.30 in August, up from 5.08 in July. On Tuesday, the U.S. housing market is in focus, as data on Housing Starts and Building Permits are released. Also of note on Tuesday is the release of Industrial Production data for the month of July, which is expected to show a 0.5% month-over-month increase. Finally, Thursday brings the weekly initial jobless claims numbers, which gives market participants a timely snapshot of the U.S. labor market, which has been a disappointing segment of the current economic recovery.

Technical Outlook: Prices are resting at the bottom of a rising channel that has confined prices since late May, now at $75.17. A break below this juncture exposes $71.09, while a bounce sees intial resistance at the $80 figure.

Commodities – Metals

Gold a Safe Haven for Now

Gold $1219.25 // +$3.75// +0.31%

Commentary: Just as crude oil took its cues from the renewed focus of financial markets on the slowing of economic growth last week, so did gold, only the metal was a beneficiary. It seems as if gold has reestablished its role as a safe haven asset, after having fallen out of favor as the European sovereign debt crisis became less of a pressing concern. Traders should recall that there remains a strong long-term, linear relationship between gold ETF holdings and gold prices. Fear across broad financial markets should only lead to sustainable gains in gold to the extent that that fear leads to increases in net holdings of gold by investors, specifically gold ETF investors, as they have been the marginal buyers. Thus far, gold ETF holdings have not rebounded in step with gold prices. We will be keeping a close eye on holdings as an indication of the sustainability of gold’s latest rally.

Technical Outlook: Prices are testing above horizontal resistance at $1214.60. Continued buying clears the way for a move to challenge $1233.85. The psychologically significant $1200 figure is acting as near-term support.

Silver $18.23// +$0.08 // +0.44%

Commentary: Silver actually declined last week, slightly decoupling from gold as investors sought safety in the more prominent metal. Consequently, the gold/silver ratio increased from 65.25 at the beginning of the week to nearly 67 currently. The relative action of gold and silver last week was not a surprise considering that both metals were notably below recent highs. As investors sought the safety of precious metals, they naturally gravitated toward gold first.

Technical Outlook: Prices have extended a recovery above the $18 figure and are now poised to re-test the upper boundary of a descending triangle chart formation that has confined spot since mid-May (now at $18.55). A breakout higher would initially expose $18.70, while a move back below $18.00 clears the way for a downside test of $17.79.

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