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Commodities: Gold, Silver Wait on FOMC Outcome for Direction Cues

By , Currency Strategist
11 December 2012 12:35 GMT

Gold and silver are looking to the outcome of the FOMC rate decision for direction cues, with a neutral result threatening to weigh on prices and boost the Dollar.

Talking Points

  • Metals Tread Water as All Eyes Look Ahead to FOMC Rate Decision
  • Crude Oil Aims Higher as Risk Appetite First Before Wall Street Open

Commodities are yielding a mixed performance ahead of the opening bell on Wall Street. Cycle-sensitive crude oil prices are on the upswing along with an apparent pickup in risk appetite, with S&P 500 index futures pointing higher. Metals are treading water however as traders eschew firm directional bets ahead of the FOMC monetary policy announcement.

At the heart of the Fed’s decision will be the fate of the so-called Operation Twist program designed to re-target stimulus at lowering longer-term borrowing costs. This is done by swapping out short-term securities on the Fed’s balance sheet for long-dated ones at a pace of about $45 billion per month. Twist is due to expire at year-end and the market consensus appears to be that it will be replaced with an equivalent-sized program.

Crucially, the market appears positioned to see the Fed replaces Twist with an “unsterilized” bond-buying program, meaning that unlike its predecessor it will not be balance-sheet neutral. Such an outcome is likely to be treated as a meaningful move to the dovish side of the spectrum, weighing on the US Dollar and boosting metals on the back of inflation-hedge demand.

However, the positive tone of the latest Fed Beige Book as well as last week’s NFP print open the door for a less aggressive maneuver that would effectively keep the current setting of monetary policy unchanged. This outcome may disappoint investors, sparking risk aversion and boosting the greenback. Needless to say, the commodity space is likely to see broad-based weakness in such a scenario.

WTI Crude Oil (NY Close): $85.93 // -0.33 // -0.38%

Prices moved lower as expected after putting in a Shooting Star candlestick. A bearish continuation Flag chart pattern now appears to be validated with a break through the setup’s lower boundary, initially exposing the 38.2% Fibonacci expansion at 84.04. A further push below that targets the 50% level at 82.13. Flag bottom support-turned-resistance is now at 85.88, with a reversal back above that aiming for the 23.6% Fib at 86.45.

Commodities_Gold_Silver_Wait_on_FOMC_Outcome_for_Direction_Cues_body_Picture_4.png, Commodities: Gold, Silver Wait on FOMC Outcome for Direction Cues

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1704.05 // +4.15 // +0.24%

Prices broke lower after putting in a Bearish Engulfing candlestick pattern, taking out support at a rising trend line set from late June. Sellers are retesting this barrier as resistance (now at 1715.03), with a break back higher aiming to challenge 1752.55. Alternatively, bearish resumption targets the November 5 low at 1672.50.

Commodities_Gold_Silver_Wait_on_FOMC_Outcome_for_Direction_Cues_body_Picture_3.png, Commodities: Gold, Silver Wait on FOMC Outcome for Direction Cues

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

Spot Silver (NY Close): $33.26 // +0.20 // +0.11%

Prices are testing the 23.6% Fibonacci expansion (33.28), with a break higher exposing the November 29 close at 34.24 and channel support-turned-resistance at the 34.63. Support is at 32.59, the 38.2% Fib. A drop below that aims for the 50% level at 32.03.

Commodities_Gold_Silver_Wait_on_FOMC_Outcome_for_Direction_Cues_body_Picture_2.png, Commodities: Gold, Silver Wait on FOMC Outcome for Direction Cues

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

COMEX E-Mini Copper (NY Close): $3.706 // +0.042 // +1.15%

Prices broke above resistance at 3.676, the 50% Fibonacci expansion, exposing the 61.8% level at 3.742. A further push higher beyond that aims for the 76.4% Fib at 3.821. The 3.676 level has been recast as near-term support. A reversal back below that aims for trend line resistance-turned-support set from the September 14 swing high, now at 3.634.

Commodities_Gold_Silver_Wait_on_FOMC_Outcome_for_Direction_Cues_body_Picture_1.png, Commodities: Gold, Silver Wait on FOMC Outcome for Direction Cues

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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11 December 2012 12:35 GMT