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Crude Oil to Follow S&P 500 Higher, Gold Torn Between Competing Forces

Crude Oil to Follow S&P 500 Higher, Gold Torn Between Competing Forces

2011-05-31 07:58:00
Ilya Spivak, Sr. Currency Strategist
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Commodities – Energy

Crude Oil to Follow S&P 500 Higher

WTI Crude Oil (NY Close): $100.43 // -0.16 // -0.16%

Prices continue to consolidate below the 38.2% Fibonacci retracement of the drop from the May 2nd high at $102.35. A break above this boundary exposes the 50% level at $104.73. Broadly speaking, anything shy of that keeps the overall structure broadly bearish. Near-term support stands at the psychologically significant $100 figure, followed by the 5/6 low at $94.65.

Prices remain firmly anchored to underlying trends in investors’ risk appetite, with the WTI contract still showing a strong correlation with the S&P 500. On balance, this suggests the path of least resistance lies to the upside as stock index tracking the US benchmark push aggressively higher overnight amid waning Euro Zone sovereign risk fears. Optimism emerged after Eurogroup head Jean-Claude Juncker ruled out a “total restructuring” for Greece – which would have amounted to a default – while a Wall Street Journal article cited an unnamed source saying German officials were ready to relax demands for early bond rescheduling to pave the way for a second round of aid to the Mediterranean country.

On the data front, the US Consumer Confidence reading headlines the calendar, with expectations calling for sentiment to rise for the second consecutive month in May, bolstering the case for an upside scenario over the next 24 hours. Weekly API inventory figures are also on tap.

Crude_Oil_to_Follow_SP_500_Higher_Gold_Torn_Between_Competing_Forces_body_Picture_3.png, Crude Oil to Follow S&P 500 Higher, Gold Torn Between Competing Forces

Commodities – Metals

Gold at Standstill, Torn Between Competing Forces

Spot Gold (NY Close): $1537.15 // +0.75 // +0.05%

Prices have taken out resistance at $1533.12, the 61.8% Fibonacci retracement of the drop from the May 2 high, clearing the way for an advance to the 76.4% level at $1549.91. The 61.8% Fib has been recast as near-term support, with a break back below that targeting the 50% retracement at $1519.55.

Although gold seemed to have regained a bit of a safe-haven status over recent days amid resurgent Euro Zone debt fears, the relationship doesn’t seem to be working too well as those concerns recede. The metal stood essentially flat overnight, swinging between gains and losses in a narrow range to yield a response that didn’t alight with the formidable gains across the risky asset spectrum.

Perhaps tellingly, short-term correlation studies suggest the link between gold and stock markets is tentatively rebuilding, hinting a shift in focus back on the expiration of QE2 (due in a mere two weeks) is beginning to unfold as the immediate threat of a blow-up in the Euro Zone is unwound. Still, it remains premature to make firm conclusions at present.

Crude_Oil_to_Follow_SP_500_Higher_Gold_Torn_Between_Competing_Forces_body_Picture_4.png, Crude Oil to Follow S&P 500 Higher, Gold Torn Between Competing Forces

Spot Silver (NY Close): $38.16 // +0.16 // +0.42%

Prices remain wedged between $36.44 and $38.99, the 23.6% and 38.2% Fibonacci retracements of the 4/25-5/6 decline, respectively. The correlation between gold and silver seems to be ebbing on short-term studies, with the cheaper metal clinging to risk appetite and rebuilding its link to the S&P 500. As such, the upswing in sentiment overnight points the way higher, with a break of immediate resistance exposing the $40.00 figure, followed by the 50% Fib at 41.05.

Crude_Oil_to_Follow_SP_500_Higher_Gold_Torn_Between_Competing_Forces_body_Picture_5.png, Crude Oil to Follow S&P 500 Higher, Gold Torn Between Competing Forces

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