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Crude Oil, Gold Look to US Fed Rate Decision for Direction Cues

Crude Oil, Gold Look to US Fed Rate Decision for Direction Cues

2010-03-16 09:18:00
Ilya Spivak, Sr. Currency Strategist
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Commodities - Energy

Oil Breaks Support, May Extend Decline on FOMC Outcome

Crude Oil (WTI)       $79.65       -$0.15       -0.19%
Prices have slipped below support at $80.28 and overcome the $80 figure, leaving the door open for a move lower to $77.53. The US Federal Reserve’s interest rate announcement is easily the top catalyst to watch, particularly if the Kansas City Fed’s Tom Hoenig is joined by anyone else on the FOMC in arguing for updating the language in the central bank’s policy statement by removing the phrase calling for interest rates to remain at “exceptionally low levels for an extended period”. The prospect of higher US interest rates is likely to encourage fears of slowing oil demand as monetary stimulus is withdrawn as well as boost the US Dollar, both of which are likely to help the bears push crude prices lower.

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Commodities - Metals

Gold, Silver Look to FOMC for Direction Cues

Gold       $1110.53       +$2.08       +0.19%
Prices have modestly recovered from support at the $1100 figure to pause ahead of resistance marked by the top of a falling channel set from the swing high on 03/03. As with oil, tomorrow’s Federal Reserve monetary policy announcement is the most-closely watched catalyst at present, with heavy selling likely if the markets perceive that Ben Bernanke and company are backpedaling on their ultra-dovish posture. This could take the form of more than one FOMC member arguing to drop the language calling for rates to stay “exceptionally low levels for an extended period”, hinting that the balance of power on the rate-setting committee is shifting. The prospect of rate hikes getting closer stands to cut into demand for gold as an inflation hedge, sending prices lower. A break below current support exposes $1088.13.

Silver       $17.18       +$0.06       +0.35%
The outlook for silver is largely in line with that gold, with all eyes on the Fed interest rate announcement as a firmer outlook for US monetary policy stands to bolster sellers, pushing prices through support at $16.86 to target below the $16.00 figure. Near-term resistance remains at $17.51.

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