Oil, Gold and Silver to Extend Drop if Soft US Sales Data Sinks Risky Assets

Commodities – Energy

Oil to Extend Drop on Slowdown in US Retail Sales Growth

WTI Crude Oil (NY Close): $106.25 // -3.67 // -3.34%

Prices followed up a Bearish Engulfing candlestick pattern with a drop through the bottom of a rising channel established from mid-March as well as the 38.2% Fibonacci retracement of the 3/16-4/11 advance at $106.85.The bears now stand to challenge the 50% Fib at $104.82, with the $106.85 level recast as near-term resistance.

Crude remains broadly responsive to sentiment trends, with prices tracking closely with global equities. The WTI contract slumped for a second day after the International Energy Agency (IEA) joined yesterday’s worrisome comments from the IMF, saying prices above $100/barrel will hurt the global economic recovery. Things were hardly helped by a jump in preliminary crude inventory figures reported by API.

Looking ahead, downward pressure seems likely to be reinforced as US retail sales growth slows for the first in three months in March, according to economists’ forecasts. Official DOE inventory figures as well as the Fed Beige Book survey of regional economic conditions are also on tap.

Commodities – Metals

Gold Selling to Persist as Soft US Data Trims Inflation Bets

Spot Gold (NY Close): $1453.10 // -10.05 // -0.69%

Prices have completed a bearish Three Inside Down candlestick pattern below resistance at the midline of a rising channel set from late January. A move lower from here to take out the channel bottom sees initial support at $1439.89, the 38.2% Fibonacci retracement of the 3/15-4/11 advance. Near-term resistance lines up at $1476.45.

As we have mentioned previously, the quarterly chart (not shown) has completed an acutely bearish Hanging Man candlestick. Similar setups in the past (the first and second quarters of 2004 and 2008 respectively) produced declines of 7.5 and 5.8 percent over the subsequent three months.

As with crude oil, broad-based sentiment trends remain in focus for the yellow metal given the implications of economic performance for the inflation outlook, opening the door for continued losses amid a slowdown in US retail sales growth. The Fed’s Beige Book regional economic survey will command attention as traders gauge the severity of the recent soft turn in leading US indicators. Indeed, an index of positive US economic data surprises compiled by Citigroup violated a rising trend established from August last week and now finds itself at the lowest in two and half months.

Spot Silver (NY Close): $40.09 // -0.16 // -0.40%

Prices put in a bearish Harami candlestick pattern below resistance at the top of a rising channel set from late January. Initial support lines up at $39.98 – the 23.6% Fibonacci retracement of the 3/17-4/11 advance – with a break below that exposing the 38.2% level at $38.77. The channel top, now at $41.80, remains as near-term resistance.

The correlation between gold and silver remains formidable, suggesting the two metals will continue to move along the same trajectory. With that in mind, the gold/silver ratio remains near record lows, suggesting the cheaper metal will continue to outperform its more expensive counterpart.

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