Crude Oil Looks to Inventories and Economic Data, Gold Buoyed by Investor Appetite

Commodities – Energy

Crude Oil Looks to Inventories and Economic Data

Crude Oil (WTI) - $72.28 // $0.36 // 0.50%

Commentary: Crude oil got slammed on Tuesday, losing $2.78, or 3.72%. In addition to the persistent economic worries that have been plaguing risk assets in general, crude oil was also pressured by the prospect of another bearish inventory report on Wednesday. As readers are aware, U.S. inventories are at multi-decade highs, with each subsequent week merely adding to the large surplus. Either this trend reverses, or prices are in for a steep fall. The slowdown in the U.S. economy does not help matters. If anything, it compounds crude oil’s troubles. The API survey, which is released a day ahead of the more important government figures, suggests that the bearish trend continues, with a 4.8 million barrel build in crude oil stocks, a 0.6 million barrel draw in gasoline stocks, and a 1.9 million barrel draw in distillate stocks. Wednesday will also feature the release of the ISM Index, which is expected to show a 52.7 reading for the month of August, down notably from the 55.5 reading in July, and well off the post-recovery peak above 60 earlier in the year. As manufacturing is one of the only bright spots in the U.S. economic recovery, a slowing in that sector does not bode well for growth in the second half of the year.

Technical Outlook: Prices followed up a Hanging Man candlestick with a drop back to the 76.4% Fibonacci retracement of the 5/19-8/4 rally at $71.46. Continued selling exposes the May bottom at $67.90. Near-term resistance lines up at $73.66, the 61.8% retracement level.

Commodities – Metals

Gold Buoyed by Investor Appetite

Gold - $1246.75 // $0.70 // 0.06%

Commentary: The gold rally continued with the metal adding $10.47, or 0.85% on Tuesday. Gold ETF holdings increased 150,000 troy ounces, sending the total to 66.85 million, above the mid-July highs of 66.81 million, and a new record high. With investor appetite for gold still strong, there is little to hinder this current rally. That being said, we still stand by our recent thoughts: in the event broad financial markets take another leg down from here, gold will likely get swept lower as traders sell the strong performing asset to raise cash. We would look for a break of the all-time high near $1265 as an indication that this thesis has been invalidated.

Technical Outlook: Prices have taken out horizontal resistance at $1243.27, 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, $1243.27 has been re-cast as support.

Silver - $19.32 // $0.03 // 0.16%

Commentary: Silver outperformed gold, sending the gold/silver ratio to 64.50. Little has changed, as silver continues to take its cues from gold. Recall that the 2010 range of the gold/silver ratio is 60 to 71, and that it may be prudent for traders to favor gold when the ratio gets near the low end and favor silver at the high end.

Technical Outlook: Prices took out resistance at $19.28, a level that is now acting as near-term support, exposing the $19.54-$19.83 congestion region. Renewed selling beyond the current downside barrier would target the $19.00 figure and $18.70.

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