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Commodities: Metals Under Fire, Crude Oil Searching for Direction

By , Currency Strategist
25 January 2013 16:43 GMT

Metals are broadly under pressure as investors appear to rethink the asset group’s overall appeal while crude oil is searching for direction along with sentiment trends.

Talking Points

  • Gold Under Pressure as Investors Appear to Rethink the Appeal of Metals
  • Crude Oil Searching for Direction Amid Lackluster Risk Sentiment Trends

Metals are broadly under pressure into the end of the trading week even as the Federal Reserve’s balance sheet hits a record-high $3.013 trillion, a development that relatively recently would have sent anti-fiat assets soaring on the back of inflation-hedge demand. In the absence of a readily identifiable stand-alone catalyst, the move may perhaps reflect a growing sense that metals’ core sources of appeal do not appear attractive in the current environment.

Investors are drawn to precious metals in one of two scenarios: when there is a credible threat of market-wide instability such that asset valuation may be disrupted, increasing the appeal of assets that don’t necessarily need the bourses to derive their worth; or when there is a credible fear of forthcoming runway inflation. In both instances, metals shine as alternative stores of value, and both possibilities have alternated in being perceived as plausible over recent years.

At this point however, ebbing tail risk in the Eurozone has meaningfully dulled fears of a major market dislocation while US CPI has dropped to a four-month low, suggesting the Fed’s efforts are hardly producing catastrophic price growth (at least for now). Add in the absence of yield in the metals space, and it seems to make broad sense why investors are choosing to eschew precious metals in lieu of other asset classes. Indeed, gold ETF holdings have dropped to their lowest in two months, underscoring the exodus of investment capital.

In the meantime, crude oil is treading water as risk sentiment trends look for a defined directional bias. The S&P 500 has probed above the 1500 figure but upward momentum is far from robust as traders weigh the day’s upbeat set of corporate earnings releases against a disappointing US New Homes Sales report. On balance, major trend development will likely have to wait until next week as growth-geared event risk begins to heat up with the FOMC rate decision and the January’s NFP reading.

WTI Crude Oil (NY Close): $95.95 // +0.72 // +0.76%

Prices continue to drift higher after taking out support-turned-resistance at 94.61. Near-term resistance is Prices put in a Bearish Engulfing candlestick pattern, hinting a move lower may be ahead. Near-term rising trend line support is at 95.24. A break below that exposing 94.61. Resistance is at 97.41, with a push above that aiming for 94.61.

Commodities_Metals_Under_Fire_Crude_Oil_Searching_for_Direction_body_Picture_4.png, Commodities: Metals Under Fire, Crude Oil Searching for Direction

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1667.95 // -17.90 // -1.06%

Prices are turning lower resistance at 1690.39, the 38.2% Fibonacci retracement. Trend line resistance-turned-support is in the 1651.68, with a break below that aiming for a falling channel bottom at 1607.37. Alternatively, a move above 1690.39 targets the channel top at 1704.95.

Commodities_Metals_Under_Fire_Crude_Oil_Searching_for_Direction_body_Picture_3.png, Commodities: Metals Under Fire, Crude Oil Searching for Direction

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

Spot Silver (NY Close): $31.66 // -0.60 // -1.86%

Prices revering lower from resistance at 32.29, the 50.0% Fibonacci retracement level, to probe below the 38% mark at 31.56. A confirmed breach of this boundary on a daily closing basis exposes the 23.6% Fib at 30.66. Alternatively, a reversal above resistance eyes the 61.8% retracement at 33.02.

Commodities_Metals_Under_Fire_Crude_Oil_Searching_for_Direction_body_Picture_2.png, Commodities: Metals Under Fire, Crude Oil Searching 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): $3.676 // -0.008 // -0.22%

Prices are consolidating below falling trend line resistance set from early September 2012 (now at 3.742). Rising channel support is at 3.623, with a break below that targeting swing lows at 3.600 and 3.522. Alternatively, a push above 3.742 exposes the January 2 high at 3.758 and the channel line at 3.839.

Commodities_Metals_Under_Fire_Crude_Oil_Searching_for_Direction_body_Picture_1.png, Commodities: Metals Under Fire, Crude Oil Searching 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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25 January 2013 16:43 GMT