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Commodities: Oil Follows Stocks Lower, Metals Manage to Find Support

By , Currency Strategist
21 December 2012 11:08 GMT

Crude oil is following stocks lower amid broad-based risk aversion across financial markets but metals have managed to find support despite a US Dollar rebound.

Talking Points

  • Crude Oil Sinks Along with Stocks on Fiscal Cliff Deadlock, Monti Resignation
  • Metals Supported Despite Dollar Recovery, Value-Hedge Demand a Possibility

Crude oil is under pressure as risk appetite crumbles (as expected) amid a lack of progress in US “fiscal cliff” negotiations. Divergent headlines pulled markets in opposing directions throughout the week but confidence began collapse in earnest as plans to vote on the so-called “Plan B” – a unilateral Republican initiative aimed at raising taxes on millionaires – failed to secure enough support to warrant a vote. Rumors of an immient resignation by Italian Prime Minister Mario Monti are adding to selling pressure.

Metals are treading water for the time being. While safe-haven flows are pushing the US Dollar sharply higher as expected, that move’s de-facto downward pressure gold, silver and copper prices appears to be finding a strong-enough countervailing force to hold back a selloff. While a clearly defined catalyst is unclear, one possible theme may a renewed appreciation for metals as a store of value in the event that a large-scale dislocation across markets disrupts price discovery, highlighting the appeal of assets with intrinsic worth that do not necessarily need financial exchanges for valuation.

WTI Crude Oil (NY Close): $90.13 // +0.62 // +0.69%

Prices are testing the top of what may prove to be a bearish Flag chart pattern (90.37). A reversal lower from here that produces a close below pattern support (now squarely at 86.00) confirms the setup, implying a measured downside target at 81.63. Alternatively, a break above 90.37 targets falling trend line resistance at 94.04.

Commodities_Oil_Follows_Stocks_Lower_Metals_Manage_to_Find_Support_body_Picture_4.png, Commodities: Oil Follows Stocks Lower, Metals Manage to Find Support

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1647.70 // -19.55 // -1.17%

Prices plunged through support at 1659.90, the 76.4%Fibonacci expansion. Sellers now aim to challenge the 100% mark at 1630.97, a barrier reinforced by the bottom of a falling channel carved out since mid-September. A further drop below this boundary aims for the 123.6% Fib at 1601.78. The 1659.90 level has been recast as resistance, with a reversal back above that targeting the 61.8% expansion at 1677.84.

Commodities_Oil_Follows_Stocks_Lower_Metals_Manage_to_Find_Support_body_Picture_3.png, Commodities: Oil Follows Stocks Lower, Metals Manage to Find Support

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

Spot Silver (NY Close): $29.96 // -1.08 // -3.46%

Prices broke through support at 30.78,the 76.4% Fibonacci expansion.Sellers are now challenging the 100%levelat 29.66, with a break below that exposing the 123.6% expansion at 28.55. The 30.78 level has been recast as near-term resistance. A reversal back above that targets the 61.8% level at 31.47.

Commodities_Oil_Follows_Stocks_Lower_Metals_Manage_to_Find_Support_body_Picture_2.png, Commodities: Oil Follows Stocks Lower, Metals Manage to Find Support

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

COMEX E-Mini Copper (NY Close): $3.536 // -0.070 // -1.94%

Prices are moving lower as expected after putting in a Bearish Engulfing below resistance at a falling trend line set from the September 14 high. Near-term support is at 3.523, the 61.8% Fibonacci retracement. A break below that exposes the 76.4% level at 3.477. Near-term resistance is at 3.560 (50% Fib) with a break above that targeting 3.597 (23.6% Fib).

Commodities_Oil_Follows_Stocks_Lower_Metals_Manage_to_Find_Support_body_Picture_1.png, Commodities: Oil Follows Stocks Lower, Metals Manage to Find Support

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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21 December 2012 11:08 GMT