Crude Shrugs off China Rate Hike, Gold Rebounds on JP Morgan News
Commodities – Energy
Crude Shrugs off China Rate Hike
Crude Oil (WTI) - $87.47 // $0.53 // 0.61%
Commentary: Crude oil rose on Tuesday, shrugging off a 25 basis point interest rate hike by the People’s Bank of China. Brent added $0.67, or 0.68%, to settle at $99.92, after reaching as low as $97.51 early in the session. WTI fell $0.54, or 0.62%, to settle at $86.94.
China raised its benchmark 1-year lending rate to 6.06% and the 1-year deposit rate to 3%. China has now raised rates 75bps since October, when it began the current tightening cycle. To put these rates in perspective, the lending rate is 1.41% off the 2008 peak, while the deposit rate is 1.14% off the peak. Overall, rates remain in the middle of the range they have been in over the past several years, thus it is not surprising that markets are largely shrugging off the recent moves.
Technical Outlook: Prices are testing support at the bottom of a major rising channel set from late August, now at $86.17. A break through this juncture would about to a significant bearish reversal, initially targeting the $85.00 figure but likely opening the door to longer-term selling. Near-term resistance lines up at $88.06, the 61.8% Fibonacci retracement of the rally from January’s low.
Commodities – Metals
Gold Rebounds on JP Morgan News
Gold - $1362.64 // $1.39 // 0.10%
Commentary: Gold moved $12.72, or 0.94%, higher to settle at $1364.03 on Tuesday. News that JP Morgan would start accepting physical gold as collateral for some transactions seemed to be the catalyst for the latest move, but the impressive strength in silver also lent support to gold. ETF investment demand still hasn’t picked up, however, with levels still at 8-month lows.
Technical Outlook: Prices have taken out resistance at 1352.49, the 38.2% Fibonacci retracement of the 1/3-1/28 downswing. The bulls now stand to challenge the 50% Fib at $1366.15, with a break higher exposing the 61.8% Fib at $1379.81. The 38.2% level has been recast as support.
Silver - $30.14 // $0.18 // 0.59%
Commentary: Silver surged on Tuesday, adding $0.93, or 3.15%, to settle at $30.32 as the metal’s impressive performance continues. Like those for gold, silver ETF holdings have fallen sharply in recent weeks, now down 22 million troy ounces since their December peak. Even so, prices remain well-bid, suggesting demand is coming from other sources, perhaps investment demand on the physical side.
The gold/silver moved lower to 45.2, the lowest since April 2006. (The gold/silver ratio measures the relative value/performance of the two precious metals. A higher ratio indicates gold outperformance, while a lower ratio indicates silver outperformance)
Technical Outlook: As with gold, silver has moved aggressively higher, taking out resistance at the 76.4% Fibonacci retracement of the 1/3-1/28 downswing (now acting as support). From here the bulls aim to challenge the 30-year high at $31.24.
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