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Crude to Follow Risky Assets Lower, Gold Trading on US Yield Outlook

Crude to Follow Risky Assets Lower, Gold Trading on US Yield Outlook

2010-03-09 11:08:00
Ilya Spivak, Sr. Currency Strategist
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Commodities - Energy

Crude Oil May Extend Losses on Fading Risk Appetite

Crude Oil (WTI)       $81.03       -$0.84       -1.03%
Prices have pulled back from resistance at $82.23 to find support above the previously broken upper boundary of a Rising Wedge formation (now at $81.26). The US economic calendar is fairly light once again, with only the Department of Energy set to release their short-term crude outlook figures while the American Petroleum Institute publishes weekly inventory data. On balance, risk sentiment may prove to be the guiding catalyst once again. Indeed, the percent-change correlation between the price of the WTI contract and the MSCI World Stock Index remains elevated at 0.76. European shares are trading lower and US index futures are firmly in negative territory, making such an outcome supportive of a bearish scenario. A break below current support will expose the $80 figure.

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Commodities - Metals

Gold, Silver to Decline on Firming US Yields Outlook

Gold       $1120.08       -$3.48       -0.31%
Gold turned lower from support-turned-resistance at a rising trend line established from the swing bottom in early February, finding support at $1118.60. The outlook for US interest rates appears to have taken over as the primary near-term catalyst. Indeed, the 20-day correlation of gold with the spread between the yields on 12-month and 1-month Treasury notes now stands at -0.60, suggesting continued selling is ahead of the market’s perception of the Fed continues to adjust toward a more hawkish posture than previously expected. A push below current support exposes the $1100.00 figure.

Silver       $17.09       -$0.16       -0.90%
As with gold, US interest rate expectations appear to be the primary driver of price action in the near term. Indeed, the silver’s inverse correlation with the spread between 12-month and 1-month Treasury yields stands at -0.69, a reading even higher than the precious metal’s more expensive counterpart. Technically, a Bearish Engulfing candlestick formation below resistance at a rising trend line connecting major swing highs from early February has marked the beginning of a move lower, with a break of initial support at $16.80 exposing the $16.00 figure.

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