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Oil and Gold Track S&P 500, Look to Fed Officials' Comments for Direction

Oil and Gold Track S&P 500, Look to Fed Officials' Comments for Direction

2011-05-11 09:18:00
Ilya Spivak, Sr. Currency Strategist
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Commodities – Energy

Oil Meets Key Resistance, Looks to Fed-speak for Direction

WTI Crude Oil (NY Close): $103.88 // +1.33 // +1.30%

Prices have recovered to test the 50% Fibonacci retracement of the drop from the May 2 high at $104.73. A break above this level exposes the 61.8% Fib at $107.10. Near-term support lines up at $102.35, the 38.2% level.

Sentiment trends remain in focus, with the WTI contract tracking closely with the S&P 500 benchmark stock index. Stock index futures are flat ahead of the opening bell on Wall Street, yielding little by way of clues on where things to from here. Official DOE inventory figures are on tap, but scheduled remarks from Minneapolis Fed chief Narayana Kocherlakota may prove most market-moving.

Of the three Fed officials due to speak today, Kocherlakota is the only voting member of the FOMC. Furthermore, he has become increasingly hawkish over recent months, so his remarks may prove to be the very thing that marks the end of the correction from last week’s selloff that has played out across the markets since Monday and return the spotlight the looming increase in US borrowing costs following the expiry of QE2 in June, sending risky assets (including crude oil) lower.

Oil_and_Gold_Track_SP_500_Look_to_Fed_Officials_Comments_for_Direction_body_Picture_7.png, Oil and Gold Track S&P 500, Look to Fed Officials' Comments for Direction

Commodities – Metals

Gold, Silver Continue to Track QE2-Linked Assets

Spot Gold (NY Close): $1516.28 // +2.53 // +0.17%

Gold has rebounded from support at a rising trend line set from January’s swing low, with prices now testing above the 50% Fibonacci retracement of the drop from the May 2 high at $1519.55. A close above this barrier exposes the 61.8% Fib at $1533.12.

As with oil, gold has carved out an increasingly significant correlation with the S&P 500 as the spectrum of assets that had benefitted from cheap funding through QE2 correct higher in tandem after last week’s broad-based selloff, a move that began the pricing-in of the stimulus program’s imminent expiry in June. To that end, the upcoming speech from the Fed’s Narayana Kocherlakota is likewise in focus for the yellow metal over the next 24 hours.

Oil_and_Gold_Track_SP_500_Look_to_Fed_Officials_Comments_for_Direction_body_Picture_13.png, Oil and Gold Track S&P 500, Look to Fed Officials' Comments for Direction

Spot Silver (NY Close): $38.50 // +0.63 // +1.67%

Prices found interim support above the $33.00 figure, recovering through the 23.6% Fibonacci retracement of the 4/25-5/6 decline ($37.01) to challenge the 38.2% level at $39.45. A break above this barrier exposes the 50% Fib at $41.42. The 23.6% level has been recast as interim support.

As another QE2 beneficiary, silver has followed gold to develop an increasingly significant correlation with the S&P 500. The directional link between the two metals remains iron-clad, hinting they will continue to move in tandem as risk trends find their bearing. The gold/silver ratio has pulled back a bit over recent days but if risk aversion returns to the forefront, the cheaper metal’s inherently higher volatility profile is likely to see it underperform its more expensive counterpart.

Oil_and_Gold_Track_SP_500_Look_to_Fed_Officials_Comments_for_Direction_body_Picture_10.png, Oil and Gold Track S&P 500, Look to Fed Officials' Comments for Direction

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