Crude Oil Down in Holiday Trade, Gold Attempts to Resume its Rally

Commodities – Energy

Crude Oil Down in Holiday Trade

Crude Oil (WTI) - $74.27 // $0.33 // 0.44%

Commentary: Crude oil is currently down after falling on Friday despite a better-than-expected U.S. nonfarm payrolls report and rallying equity markets. Surging U.S. inventories continue to put pressure on the commodity, which typically rallies strongly on global growth optimism. It is worth repeating that inventories in the U.S. are at multi-decade highs and that U.S. crude oil production is at 6-year highs. In such an environment, the DOE inventory report becomes much more important, thus that is a key event in the coming week. The report will be released on Thursday at 10:30 EST, a day later than usual due to the Labor Day holiday. Obviously, crude will also continue to be influenced by fluctuations in market sentiment and the movements of equity markets. The U.S. economic calendar is extremely light in the coming week, in large part due to the holiday-shortened week. Pit trading in commodities will be closed tomorrow in observance of Labor Day, while equity and bond markets will be closed as well.

Technical Outlook: Prices continue to consolidate above horizontal support at $71.09, with near-term resistance lining up at $75.59. This barrier is reinforced by support-turned-resistance at the bottom of a rising channel set from late May, now at $76.57. A Doji candlestick at range resistance hints a downswing may be ahead, although momentum is likely to be limited in quiet holiday trade.

Commodities – Metals

Gold Attempts to Resume its Rally

Gold - $1248.50 // $1.75 // 0.14%

Commentary: Gold will attempt to resume its uptrend in the coming week after losing a bit of steam on Friday. The metal failed at an extremely formidable resistance area just under the all-time high. Unsurprisingly, gold ETF holdings also fell back a bit as traders took profit after a lengthy bull run. Gold’s push higher will be made easier by renewed selling in equity markets, whereas a continuation of the rally in risk appetite may lead to more selling in the safe haven metal.

Technical Outlook: Positioning continues to point to an advance toward the record high at $1265.30 after the bulls took out resistance at the $1243.27 level. This juncture is now acting as support and is reinforced by the bottom of a rising channel that has confined prices since late July. 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 $1203.48.

Silver - $19.82 // $0.06 // 0.31%

Commentary: Silver is close to unchanged after surging last week, outperforming gold by almost a 5 to 1 margin. The gold/silver ratio is now under 63 and near the low end of this year’s range between 60 and 71. While there is room for silver to outperform gold for a while longer, it is likely that in the bigger picture, gold will continue to lead the precious metal complex and that the relationship between the metals will be fairly stable.

Technical Outlook: Prices took out resistance at the mid-May swing high ($19.83), with the door now open for a challenge of the psychologically significant $20.00 figure. Continued upside beyond that targets the record-highest daily close at $20.82 and the all-time high at $21.35.

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