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Oil Clings to Risky Assets, Gold Pressured by Inflation Outlook

Oil Clings to Risky Assets, Gold Pressured by Inflation Outlook

2010-03-23 11:27:00
Ilya Spivak, Sr. Currency Strategist

Commodities - Energy

Crude Oil Rebounds, Risk Sentiment Remains Top Catalyst

Crude Oil (WTI)       $81.37       -$0.23       -0.28%
Prices recovered above the $80 figure after testing support in the $78.06-79.33 congestion region but bullish momentum has stalled ahead of the $82 level for the time being. The economic calendar offers competing catalysts, with US Existing Home Sales expected to decline for the third consecutive month in February while the Richmond Fed’s manufacturing index rises to the highest level since October of last year. Weekly crude inventory numbers from the American Petroleum Institute (API) are also on tap. On balance, prices are likely to fall in with the trajectory of risk appetite as the 21-day percent-change correlation between crude and the MSCI World Stock Index continues to hold the formidable reading of 0.85. This may bode well for bulls in the near term with Asian and European shares moving higher, although US equity index futures betray an apparent lack of conviction with prices essentially flat ahead of the opening bell on Wall St. A push above $82 will target the 03/12 high at $83.16, while a break of current support will expose the $77.00 figure.

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Commodities - Metals

Gold, Silver Remain Under Pressure on Fading Inflation Outlook

Gold       $1098.10       -$4.15       -0.38%
Prices continue to tread water above the $1100 figure having turned lower after a test of resistance at support-turned-resistance marked by a rising trend line set from the swing low in early February. The spread between 10-year US Treasury yields and those on equivalent-maturity TIPS closed at a two-week low yesterday, pointing to downward pressure on the perennial inflation hedge amid fading price growth expectations. A break below current support targets $1088.13.

Silver       $16.84       -$0.14       -0.80%
Silver has found near-term support at a rising trend line set established from the 03/05 swing low. In a similar fashion to its more expensive counterpart, ebbing inflation expectations may continue to weigh on prices. A push below trend line support (now at $16.81) will expose the $16.00 figure, followed by a horizontal barrier at $15.69.

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