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Crude Oil, Gold Decline as Federal Reserve Disappoints QE3 Hopes

Crude Oil, Gold Decline as Federal Reserve Disappoints QE3 Hopes

2011-09-22 11:39:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • Crude Oil Sinks Along with S&P 500, More Weakness Likely Ahead
  • Gold Falls as Measured FOMC Outcome Saps Inflation Hedge Demand

WTI Crude Oil (NY Close): $85.92 // -1.00 // -1.15%

As we discussed yesterday, the Federal Reserve’s decision not to expand its balance sheet in favor of the so-called “Operation Twist” has weighed heavily on growth-sensitive assets and is pressuring crude oil prices lower by extension. S&P 500 stock index futures are pointing aggressively lower – down over 2 percent ahead of the opening on Wall Street – hinting the WTI contract is set for continued losses. The economic calendar is fairly quiet, with weekly US Jobless Claims figures headlining the docket, suggesting there is little on tap to dislodge bearish momentum over the near term. A daily close below support at $84.61, the 23.6% Fibonacci extension level, exposes the next downside barrier at $80.97 (the 38.2% Fib).

Crude_Oil_Gold_Decline_as_Federal_Reserve_Disappoints_QE3_Hopes_body_Picture_3.png, Crude Oil, Gold Decline as Federal Reserve Disappoints QE3 Hopes

Spot Gold (NY Close): 1782.35 // -21.28 // -1.18%

Our suggestion that gold would break with its role as a safe haven and decline along with risky assets if the Federal Reserve did not expand its balance sheet at yesterday’s FOMC policy meeting seems to be playing out as demand for the yellow metal as a hedge against would-be dilution of fiat currency is eroded. Prices are approaching critical support in the $1702.90-1745.25, with a break below this juncture firmly reinforcing the double top below the $1900/oz figure and opening the door for a decline toward a measured target at $1493.75 over the weeks ahead. Near-term resistance strands at a rising trend line set from early June (now at $1843.90) that had previously acted as support.

Crude_Oil_Gold_Decline_as_Federal_Reserve_Disappoints_QE3_Hopes_body_Picture_4.png, Crude Oil, Gold Decline as Federal Reserve Disappoints QE3 Hopes

Spot Silver (NY Close): $39.69 // -0.10 // -0.26%

As with gold, the Fed’s decision not to resume asset purchases is weighing heavily on the silver prices as demand for alternative stores of value goes by the wayside in the absence of further expansion of the money supply. Prices are testing below support at $38.73, with a break below hat exposing the $37.00 figure. For the time being, near-term resistance remains at $40.01.

Crude_Oil_Gold_Decline_as_Federal_Reserve_Disappoints_QE3_Hopes_body_Picture_5.png, Crude Oil, Gold Decline as Federal Reserve Disappoints QE3 Hopes

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