Crude Oil Follows Equities Lower, Gold is Calm Before the Storm

Commodities – Energy

Crude Oil Follows Equities Lower

Crude Oil (WTI) - $74.13 // $0.57 // 0.76%

Commentary: Crude oil’s three-day win streak was snapped on Monday after U.S. equity markets fell almost 1.5% on the day. Crude’s decline was much more modest in comparison; the commodity fell $0.47, or 0.63%, but the sell off is continuing after hours with the commodity down another $0.58, or 0.78%. Double dip fears are back in focus, as the S&P 500 stock index threatens to break the $1040-$1050 support level, a break of which would then expose the July 1st multi-month lows at $1011. Economic data on Monday was mixed—personal spending figures showed a 0.4% increase versus the 0.3% expectation, while personal income rose 0.2% versus the 0.3% that was expected. The market’s reaction to the data is quite telling and makes the rest of the economic data this week even more significant. There will need to be some very encouraging releases to overcome the bearish sentiment that is pervading financial markets. Tuesday brings the release of the Conference Board’s Consumer Confidence figure for Aug; a reading of 50.7 is expected. Later in the week we will get the ISM Manufacturing and Services data, followed by the most anticipated release, the nonfarm payrolls report on Friday.

Technical Outlook: Prices are showing a Hanging Man candlestick below resistance near the 50% Fibonacci retracement of the 5/19-8/4 rally ($75.43) and the lower boundary of a previously broken rising channel set from the May bottom ($76.12), hinting a move lower is ahead. The 61.8% retracement at $73.66 marks initial support, with a break below that exposing the 76.4% level at $71.46.

Commodities – Metals

Gold is Calm Before the Storm

Gold - $1237.05 // $0.08 // 0.01%

Commentary: Gold stalled on Monday, falling $1.13, or 0.09%. Gold ETF holdings did not stall, and instead rose another 100,000 troy ounces to 66.7 million, just shy of the record level of 66.8 million set in mid-July. We maintain that while the current market environment is conducive for more gains in gold in theory, the reality may turn out to be quite different. For in the past we have seen broad financial market sell- offs spill over into gold and the entire precious metals complex as traders sought to raise cash.

Technical Outlook: Prices are continuing to test 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 - $19.04 // $0.03 // 0.14%

Commentary: Silver lost $0.08, or 0.40%, on Monday. The gold/silver ratio stands at 65, close to the midpoint of the 2010 range of 60 to 71. For all the volatility we have seen in the ratio, the relationship between gold and silver has stayed the same. Traders may wish to take advantage of the volatility by favoring silver when the ratio gets toward the high end and favoring gold when the ratio gets toward the low end.

Technical Outlook:Prices continue to stall ahead of resistance at $19.28 having taken out resistance at the top of a Descending Triangle that had confined spot since mid-May. 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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