Crude Oil Weighed by Inventories, Gold Stalls as Equity Markets Rally

Commodities – Energy

Crude Oil Weighed by Inventories

Crude Oil (WTI) - $73.70 // $0.21 // 0.28%

Commentary: Crude oil reversed a large part of Tuesday’s losses on Wednesday, but the commodity remains notably below the recent $75.58 high registered on Monday. One would have expected more from crude oil given the enormous 3% rally in U.S. equity markets, but yet another bearish inventory report kept a lid on prices. U.S. oil inventories are going through the roof, and while a large part of the increase could perhaps be attributed to floating storage coming back onshore, other factors are contributing to the oversupply as well. U.S. crude oil production, for instance, has hit the highest level in six years. Furthermore, OPEC production remains above the level necessary to keep storage stable per IEA figures. Overall, crude oil supplies remain abundant, thus the trajectory of prices will be highly dependent on demand. Anything less than surging demand growth for the balance of 2010 and 2011 may lead to crude oil breaking below the upper $60’s to low $80’s range that has contained the commodity for twelve months.

Technical Outlook: Prices are wedged between support-turned-resistance at the bottom of a rising channel set from late May (now at $84.95) and a horizontal barrier at $71.09. A move above immediate resistance exposes the $80.00 figure while a break lower clears the way for a test of the previous bottom at $68.01.

Commodities – Metals

Gold Stalls as Equity Markets Rally

Gold - $1246.75 // $2.45 // 0.20%

Commentary: Gold prices reached just shy of $1255 on Wednesday before settling $3.14, or 0.25% lower at $1244.30. Investor demand remains insatiable with gold ETF holdings hitting a new record high near 66.9 million troy ounces. Clearly gold lost some of its safe haven appeal on Wednesday as broad financial markets surged higher, but the decline in the metal was extremely modest by any measure. With investor demand remaining brisk, as evidenced by ETF holdings, it will be difficult for gold to sell off to any significant degree. While we remain wary of gold at current prices, there is no denying that the metal remains in a stubborn bull market.

Technical Outlook: Prices have stalled having taken out resistance at $1243.27 but positioning continues to point toward the likelihood of an advance toward the record high at $1265.30. Alternatively, a reversal lower that sees prices slip back below $1243.27 will target initial support at $1215.47.

Longer term, gold 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.

Silver - $19.31 // $0.05 // 0.27%

Commentary: Silver eked out a gain on Wednesday, rising less than penny, or 0.04%. At this stage in the rally, silver’s fate will likely be completely tied to that of gold. The gold/silver ratio stands at 64.5, little changed from yesterday.

Technical Outlook: As with gold, prices have stalled after taking out resistance at $19.28, a level that is now acting as near-term support. Resistance remainsin 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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