Crude Oil Positioned to Rise on US GDP Revision, Gold May Drop as Greece Fears Fade
Commodities – Energy
Crude Oil to Extend Gains on US GDP Revision
WTI Crude Oil (NY Close): $101.32 // +1.73 // +1.74%
Prices took out the top of a descending triangle pattern, exposing the 38.2% Fibonacci retracement of the drop from the May 2 high at $102.35. A break above this boundary exposes the 50% level at $104.73. Broadly speaking, anything shy of a daily close above the latter boundary keeps the overall structure broadly bearish. Near-term support stands at the psychologically significant $100 figure.
The correlation between the WTI contract and the S&P 500 remains firm, putting the spotlight on tomorrow’s revised first-quarter US Gross Domestic Product figures. Expectations call for the headline quarterly growth reading to be nudged higher to 2.2 percent from the originally reported 1.8 percent result. Risky assets seem to be treating the adjustment as a positive development despite its implications for the Fed rate hike outlook, with stock index futures firmly in positive territory overnight. On balance this points the way higher for crude prices in the day ahead barring a downside surprise on the data front.
Commodities – Metals
Gold May Fall as Greek Debt Fears Ease
Spot Gold (NY Close): $1525.32 // -1.30 // -0.09%
Prices put in a Doji candlestick below resistance at $1533.12, the 61.8% Fibonacci retracement of the drop from the May 2 high, hinting the upswing recorded over the past three sessions may be running out of steam. Initial support stands at $1519.55, the 50% Fib, with a break below that exposing rising trend line support set from late January, now at $1495.22. Confirmation remains elusive however, leaving the possibility that current positioning represents a pause in the move higher rather than the sign of a reversal, with a break higher targeting the 76.4% Fib at $1549.91.
Gold’s correlation with the S&P 500 has dropped to the lowest in over two weeks, underscoring the conflicting forces pulling at price action. On one hand, the unwinding of positions funded through investors’ access to cheap loans via QE2 ahead of the program’s June expiry aligns the metal with risky assets. On the other, risk aversion driven by the re-emergence of Euro Zone sovereign fears since the beginning of the week has seen gold take up a safe-haven role, with prices tracking increasingly close to an average of 5-year periphery credit-default swap rates (a measure of the likelihood of default in any of the so-called “PIIGS” countries).
With that in mind, the sharp drop in Greek CDS over the past two days hints gold has scope to reverse lower having advanced since the beginning of the week while stocks declined. The surge in optimism came after the Greek government assured markets it will remain within the Euro area and ruled out early elections while also expressing optimism that it will receive the fifth tranche of its EU-IMF loan. Separate reports from the OECD and Fitch also helped; the former said Greece will return to sustainable growth in 2012 while the latter argued German banks’ exposure to Greek sovereign debt is “manageable”, alleviating fears that credit stress in the Mediterranean country could derail the region’s top economy.
Spot Silver (NY Close): $37.92 // +1.24 // +3.39%
Prices took out resistance at $36.44, the 23.6% Fibonacci retracement of the 4/25-5/6 decline, opening the door for an advance to challenge the 38.2% level at $38.99. The 23.6% barrier has been recast as near-term support.
Unlike gold, silver has remained closely linked with the spectrum of risky assets, with the metal continuing to show a significant and stable correlation with the S&P 500 benchmark stock index. One reason why this may be the case is the generally more speculative nature of the cheaper metal, making it less attractive as a safe haven.
With this in mind, S&P 500 stock index futures and Asian bourses are firmly in positive territory in overnight trade, suggesting silver has room to extend gains over the near term. Still, the upswing comes within the context of a larger down move amid lingering risk-averse tendencies ahead of June’s QE2 expiry.
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