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Gold Sinks on Ebbing Demand Cues, Crude Oil Vulnerable

By , Currency Strategist
02 April 2013 13:22 GMT

Gold prices are sinking amid signs of unraveling investment demand. Crude oil may fall if US Factory Orders data falls short of expectations.

Talking Points

  • Gold Prices Plunge on Signs of Ebbing Investor Demand, Silver Follows
  • Crude Oil, Copper at Risk on Possibility of Soft US Factory Orders Data

Gold prices are facing heavy selling pressure amid evidence of slumping investment demand. SPDR Gold Trust – the largest bullion-backed ETF – reported overnight that its holdings fell 4.21 tonnes yesterday to put the total known stock in exchange-traded funds at the lowest since late-August 2012 (according to data from Bloomberg). Silver is following its more expensive counterpart downward.

Typically sentiment-sensitive crude oil and copper prices are treading water despite signs of firming risk appetite as S&P 500 stock index futures push higher ahead of the opening bell on Wall Street. February’s US Factory Orders report may help to spark directional momentum. Expectations point to a 2.9 percent increase compared with the prior month, marking the largest gain in five months.

While such an outcome seems likely to prove supportive, the possibility of a disappointing result is not insignificant. A Citigroup index tracking the performance of US economic data relative to expectations has snapped the uptrend in place since early February, suggesting news-flow may be taking a sustained dour tone once again. If that is indeed the case, growth-linked commodities may find themselves under pressure as risk appetite erodes.

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WTI Crude Oil (NY Close): $97.07 // -0.16 // -0.16%

Prices are pulling back from resistance at 97.67, the 123.6% Fibonacci expansion. Near-term support is at 96.55, the 100% level, with a break beneath that eyeing a formerly broken falling trend line at 96.03. Alternatively, a reversal above resistance aims for the 138.2% Fib at 98.36.

Commodities_Gold_Sinks_on_Ebbing_Demand_Cues_Crude_Oil_Vulnerable_body_Picture_3.png, Gold Sinks on Ebbing Demand Cues, Crude Oil Vulnerable

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1599.52 // +0.77 // +0.05%

Prices are testing support at a rising trend line set from late February (1596.62), with a break lower initially targeting the 23.6% Fibonacci expansionat 1586.17. Near-term resistance is at 1616.98, the March 21 high. A reversal above that aims for a longer-term falling trend line at 1636.16.

Commodities_Gold_Sinks_on_Ebbing_Demand_Cues_Crude_Oil_Vulnerable_body_Picture_4.png, Gold Sinks on Ebbing Demand Cues, Crude Oil Vulnerable

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $28.04 // -0.43 // -1.49%

Prices broke support at 28.28, the 23.6% Fibonacci expansion, exposing the 38.2% level at 27.62.A further push below that aims for the 50% Fib at 27.09. Near-term resistance remains in the 29.42-92 area, with added reinforcement found at a falling trend line set from late November 2012.

Commodities_Gold_Sinks_on_Ebbing_Demand_Cues_Crude_Oil_Vulnerable_body_Picture_5.png, Gold Sinks on Ebbing Demand Cues, Crude Oil Vulnerable

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.374 // -0.028 // -0.82%

Prices broke support at 3.398, the 23.6% Fibonacci expansion, exposing the 38.2% level at 3.339. A further break beneath that aims for the 50% Fib at 3.292. The 3.398 level has been recast as near-term resistance, with a reversal back above that eyeing the 14.6% expansion at 3.434.

Commodities_Gold_Sinks_on_Ebbing_Demand_Cues_Crude_Oil_Vulnerable_body_Picture_6.png, Gold Sinks on Ebbing Demand Cues, Crude Oil Vulnerable

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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02 April 2013 13:22 GMT