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Crude Oil, Gold Gains May Prove Fleeting as Risk Appetite Falters

Crude Oil, Gold Gains May Prove Fleeting as Risk Appetite Falters

2011-10-14 14:08:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • Crude Oil Following S&P 500 Higher After Strong US Retail Sales Report
  • Gold, Silver Continue to See US Dollar as Risk Trends Transmission Conduit

WTI Crude Oil (NY Close): $84.23 // -1.34 // -1.57%

Crude oil remains anchored to broad-based risk sentiment trends, with prices continuing to show a strong correlation with the S&P 500 and following the benchmark index higher in early trade as investors respond to a better-than-expected US Retail Sales report. Confidence may prove fleeting however as traders digest a sharply weaker than expected the Univ. of Michigan Consumer Confidence print and as speculation turns to the weekend’s G20 finance ministers’ summit.

Rumors making the rounds on the newswires ahead of the sit-down hint a plan is taking shape to funnel emerging-market funding via the IMF into troubled EU countries, which is broadly supportive for risk appetite and crude alike. However, traders may prove unwilling to commit to a directional bias and take profits on pro-risk bets ahead of the weekend, waiting for a firm outcome to actually arrive before committing to a directional bias having been disappointed by countless promises on the European debt issue over recent months.

On the technical front, prices are probing above resistance at the top of a falling channel set from early May, with a close above this juncture negating bearish cues for a more neutral tone. If the break is to materialize, the next layer of significant resistance is found at the $90.00 figure. Near-term support remains at $83.65.

Crude_Oil_Gold_Gains_May_Prove_Fleeting_as_Risk_Appetite_Falters_body_Picture_3.png, Crude Oil, Gold Gains May Prove Fleeting as Risk Appetite Falters

Spot Gold (NY Close): 1668.14 // -7.89 // -0.47%

In the absence of significant news on the US monetary policy front, gold continues to take indirect cues from risk sentiment via the trajectory of the US Dollar, rising along with risky assets as a swell in confidence weighs on the safe-haven greenback (and vice versa). The technical picture has remained effectively unchanged for the past two weeks. Prices remain locked in a choppy range between the 14.6% and 38.2% Fibonacci retracements at 1589.14 and 1680.78 respectively. A break below immediate support exposes the September 26 low at 1532.45. Alternatively, a push higher through the range top exposes the 50% Fib at 1726.60.

Crude_Oil_Gold_Gains_May_Prove_Fleeting_as_Risk_Appetite_Falters_body_Picture_4.png, Crude Oil, Gold Gains May Prove Fleeting as Risk Appetite Falters

Spot Silver (NY Close): $31.89 // -0.73 // -2.24%

As with gold, silver is looking to the US Dollar as the transmission mechanism for sentiment trends. Overall positioning has been little changed over recent days however, with prices still treading water above resistance-turned-support at $30.98, the 14.6% Fibonacci extension level. Near-term resistance is marked by the September 27 high at $33.51.

Crude_Oil_Gold_Gains_May_Prove_Fleeting_as_Risk_Appetite_Falters_body_Picture_5.png, Crude Oil, Gold Gains May Prove Fleeting as Risk Appetite Falters

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

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