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Commodities: Gold, Crude Oil Look to Fiscal Cliff Talks for Direction

By , Currency Strategist
27 December 2012 09:37 GMT

Crude oil and gold prices are at the mercy of US lawmakers as all eyes remain on Washington, DC in hopes of a deal to avoid the fast-approaching “fiscal cliff”.

Talking Points

  • Crude Oil, Copper to Rise with Stocks if “Fiscal Cliff” Deal is Achieved
  • Gold and Silver to Reflect Dollar’s Response to US Budget Negotiations

The spotlight remains on Washington, DC as financial markets return from the Christmas holiday, where US policymakers have a mere five days left to deliver a deal avoiding the so-called “fiscal cliff”. The markets’ baseline scenario appears to call for a last-minute compromise that avoids an immediate fiscal shock but falls short of setting US public finances on a sustainable long-term path. The emergence of a loose framework for negotiating a “grand bargain” in the future also seems to be baked in.

While a watered-down accord is undeniably better for market-wide risk appetite than none at all, follow-through is likely to be limited to a short-term advance reflecting the dissipation of uncertainty. Indeed, with investors’ forecasts validated, the impetus for speculation evaporates. For commodities, this portends an uptick in cycle-sensitive crude oil and copper prices. Gold and silver may likewise find near-term support amid ebbing haven demand for the US Dollar.

WTI Crude Oil (NY Close): $90.98 // +2.37 // +2.67%

Prices are testing resistance at 91.23, the intersection of the 61.8% Fibonacci expansion and the top of a rising channel set from early November. A break higher targets the 76.4% level at 92.01. Support is at 90.59, the 50% Fib, with a drop below that exposing the 38.2% expansion at 89.98.

Commodities_Gold_Crude_Oil_Look_to_Fiscal_Cliff_Talks_for_Direction_body_Picture_4.png, Commodities: Gold, Crude Oil Look to Fiscal Cliff Talks for Direction

8hr Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1659.75 // +0.85 // +0.05%

Prices mounted a shallow recovery from support at 1630.97, marked by the 100% Fibonacci expansion and reinforced by the bottom of a falling channel set from mid-September.The 76.4% expansion at 1659.90 is acting as near-term resistance, with a move above that targeting the 61.8% mark at 1677.84. Alternatively, a reversal below 1630.97 aims for the 123.6% Fib at 1601.78.

Commodities_Gold_Crude_Oil_Look_to_Fiscal_Cliff_Talks_for_Direction_body_Picture_3.png, Commodities: Gold, Crude Oil Look to Fiscal Cliff Talks for Direction

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

Spot Silver (NY Close): $30.01 // +0.06 // +0.19%

Prices are stalling after breaking through support at 30.78,the 76.4% Fibonacci expansion.Near-term support is now at 29.66, the 100%level, 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_Gold_Crude_Oil_Look_to_Fiscal_Cliff_Talks_for_Direction_body_Picture_2.png, Commodities: Gold, Crude Oil Look to Fiscal Cliff Talks for Direction

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

COMEX E-Mini Copper (NY Close): $3.598 // +0.052 // +1.47%

Prices are testing above resistance at 3.596, the 23.6% Fibonacci expansion. A break higher exposes the 38.2% level at 3.643. Near-term support is at 3.522, the December 20 low, with a decline below that aiming for a rising trend line at 3.450.

Commodities_Gold_Crude_Oil_Look_to_Fiscal_Cliff_Talks_for_Direction_body_Picture_1.png, Commodities: Gold, Crude Oil Look to Fiscal Cliff Talks for Direction

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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27 December 2012 09:37 GMT