Crude Oil Flat Ahead of Plethora of Data, Gold Slow but Steady

Commodities – Energy

Crude Oil Flat Ahead of Plethora of Data

Crude Oil (WTI) - $75.17 // $0.00 // 0.00%

Commentary: Crude oil will attempt to build upon last week’s three-day rally that saw the commodity bounce from a low of $70.76 to $75.59. But, as much of that rally can be attributed to oversold conditions, it will be difficult to repeat such performance, especially given that the U.S. economic outlook remains extremely challenging in the near-term. While Fed Chairman Ben Bernanke’s pledge on Friday to restart the central bank’s quantitative easing program if needed is supportive of financial markets, the coming plethora of economic data will likely be more influential in determining the direction of risk assets. This week features many important releases such as Personal Income (0.3% expected) and Spending (0.3% expected) data on Monday; the Conference Board’s measure of Consumer Confidence on Tuesday (50.9 expected); the ISM Index on Wednesday (52.8 expected); Factory Orders on Thursday (0.4% expected), and Nonfarm payrolls on Friday (-100K expected). The key concern for both crude oil and equities remains to what extent the U.S. economy is set to slow in the coming quarters, and whether the world’s largest economy will enter a double dip recession.

Technical Outlook: Prices continued higher after showing a Piercing Line bullish reversal candlestick formation above support at $73.66, the 76.4% Fibonacci retracement of the 5/19-8/4 rally, taking out the 61.8% Fib at $73.66 to challenge the 50% mark at $75.43. This is reinforced by the lower boundary of a broken rising channel set from the May bottom (now at $76.00). A move above that sees resistance at $77.21, the 38.2% retracement level.

Commodities – Metals

Gold Slow but Steady

Gold - $1235.50 // $2.60 // 0.21%

Commentary: Can the gold rally continue this week? It has been straight up for the metal ever since it put in its corrective lows at the end of July. All of the ingredients for a continued rally are in place: financial market uncertainty, rising gold ETF holdings, and momentum. That being said, as prices are only slightly below their all-time highs, additional advances will naturally be more and more difficult. Furthermore, as we have stated on more than one occasion, in the event that the broad financial markets sell off steeply from here, gold will likely get swept lower, as traders sell the strong performing asset to raise cash.

Technical Outlook: Prices are testing horizontal resistance at $1243.27, with a break past this boundary exposing the record high at $1265.30. As we mentioned previously however, longer-term positioning reveals bearish cues with clear negative RSI divergence hinting that a major top may be taking shape. Confirmation of a downward reversal in line with our fundamental outlook requires a weekly close below a rising trend line set from the swing bottom in late 2008, now at $1198.36. Near-term, a reversal at current resistance sees initial support at $1215.47.

Silver - $19.09 // $0.00 // 0.00%

Commentary: Silver soared last week, putting in a 6% four-day rally to end the week. The gold/silver ratio fell notably from over 68 to nearly 64. The volatility can likely be attributed to normal fluctuation in the ratio, as gold will continue to lead the entire precious metals complex.

Technical Outlook: Prices have stalled ahead of resistance at $19.28 having resolved aDescending Triangle chart formation that had confined spot since mid-May with yesterday’s sharp break to the upside. Near-term support lines up at $18.70. Alternatively, continued gains see resistance in the $19.54-$19.83 congestion region.

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