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Gold Exposed To Easing Ukrainian Concerns, Crude Oil Cracks $100

By , Currency Analyst
08 May 2014 04:36 GMT

Talking Points

  • Gold vulnerable to easing Ukrainian tensions following tumble overnight
  • WTIcracks $100 handle but may be exposed to souring sentiment
  • Silver downtrend remains intact with prices eyeing key support at $19.00

Gold and silver have stabilized in Asian trading after plummeting overnight as ebbing geopolitical tensions and an upbeat tone from Fed Chair Janet Yellen weighed on prices. Meanwhile positive investor sentiment and a reported drop in crude oil inventories have pushed WTI above the psychologically-significant $100 a barrel handle. A light US economic docket heading into the end of the week leaves the commodities space to take cues from broader-risk trends, which may leave oil prices exposed to a pullback.

Gold Vulnerable To Ebbing Geopolitical Concerns

As noted in recent commodities reports; two key drivers continue to offer guidance to gold prices, namely geopolitical risks and Fed policy expectations via the US Dollar. The yellow metal received negative cues from both sources overnight likely leading to the largest daily percentage drop in prices since April 15th.

Newswires reported that Russian President Vladimir Putin has requested the withdrawal of troops from the Eastern Ukrainian border. The latest developments in the ongoing crisis may have acted to ease concerns over a further escalation in the region, which has likely sapped safe-haven demand for the precious metals. While a resolution to unrest may be out of reach for the time-being, an easing of tensions may tempt traders into a further unwinding of fear-driven positioning in gold.

Yellen Comments Weigh On Gold Prices

An optimistic view on the US economy from Fed Chair Janet Yellen in her testimony to the Joint Economic Committee helped the ailing US Dollar to recover some ground overnight, which in turn put further pressure on gold and silver.

However, Dr. Yellen’s testimony hardly offers the panacea needed to ail the greenback’s recent woes. Her cautious comments on rate increases in particular have failed to materially lift US 10 year yields. Until we see a more aggressive stance from policy officials on a potential rise for borrowing rates in the US the reserve currency may continue to flounder, which is a positive for gold prices.

Crude Exposed To Souring Of Sentiment

An unanticipated drop in US crude oil inventories as reported by the Department of Energy overnight helped WTI break above the $100.00 a barrel handle. However, much of the gains occurred alongside a rally in US equity benchmarks, suggesting broader investor optimism about the US economy may have helped contribute to the rise in prices.

With a light US economic docket heading into the end of the week, crude may look to take its cues from broader risk-trends. The 20 day correlation between the S&P 500 (used as a proxy for investor sentiment) and crude oil has strengthened to 0.2415. While the relationship is notably weaker than earlier in the year, investor sentiment may still hold some influence over prices. With US equities trading shy of record highs and recent wobbles suggesting signs of exhaustion from the bulls, a correction may be on the cards, which would likely bode ill for WTI.

CRUDE OIL TECHNICAL ANALYSIS

Crude oil has broken below trendline support following the emergence of an Evening Star formation on the daily. Alongside building downside momentum (reflected by the rate of change indicator) and a move below the 20 SMA a bearish technical bias is offered. However, the daily close above the psychologically significant $100.00 handle suggests the potential for a short-term recovery which precludes new short positions at this stage. Sellers are likely to re-emerge at the 102.30 level of resistance.

Crude Oil: Pushes Past Key Resistance Level

Gold Exposed To Easing Ukrainian Concerns, Crude Oil Cracks $100

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS

Gold has pulled back to retest its descending trendline on the daily. As is often the case, a retest will help confirm whether prices may continue in the initial breakout direction. Buyers are also likely to emerge at the $1,277 mark, which has acted to support prices for the past month. Of additional consideration is the ATR reflecting low levels of volatility which generally suits range-trading.

The DailyFX Speculative Sentiment Index suggests a bearish bias for gold based on trader positioning.

Gold: Drops Below $1,305 To Retest Trendline

Gold Exposed To Easing Ukrainian Concerns, Crude Oil Cracks $100

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS

The Morning Star pattern on the daily chart has failed to stir the silver bulls as prices retreat back towards the all-important $19.00 handle. The pullback has negated earlier indications of a potential uptrend emerging on the daily which precludes a bullish technical bias at this stage.

Silver: $19.00 Handle Back On The Cards

Gold Exposed To Easing Ukrainian Concerns, Crude Oil Cracks $100

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS

Copper prices have pushed outside the ascending trend channel on the daily as price action hints at the possible emergence of a downtrend. The ROC indicator’s tick into negative territory also suggests the bears are looking to stage a return. Buying support likely rests at the $2.980 mark.

Copper: Bearish Signals Emerge

Gold Exposed To Easing Ukrainian Concerns, Crude Oil Cracks $100

Daily Chart - Created Using FXCM Marketscope 2.0

PALLADIUM TECHNICAL ANALYSIS

Palladium has tumbled from its 2014 high in recent trading. The Doji candlestick formation on the daily helped indicate the bulls had lost their grip on prices near the critical $815.0 handle. Given the precious metal remains in an ascending trend channel new short positions may be better-afforded on a break below trendline support.

Palladium: Prices Collapse As Bulls Lose Momentum

Gold Exposed To Easing Ukrainian Concerns, Crude Oil Cracks $100

Daily Chart - Created Using FXCM Marketscope 2.0

PLATINUM TECHNICAL ANALYSIS

A bearish reversal signal has emerged for platinum following the plunge in prices overnight. The Evening Star formation may hint at further declines if confirmed by a successive down-day and daily close below nearby support at $1,427.

Platinum: Bearish Signal Awaits Confirmation Near Key Support

Gold Exposed To Easing Ukrainian Concerns, Crude Oil Cracks $100

Daily Chart - Created Using FXCM Marketscope 2.0

Written by David de Ferranti, Currency Analyst, DailyFX

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08 May 2014 04:36 GMT