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Commodities: Oil, Gold at Risk as Markets Focus on US Budget Woes

Commodities: Oil, Gold at Risk as Markets Focus on US Budget Woes

Ilya Spivak, Head Strategist, APAC

Crude oil and gold prices may face selling pressure through the week-end amid signs of continued deadlock as US officials struggle to avert the looming “fiscal cliff”.

Talking Points

  • Crude Oil, Copper May Follow Stocks Lower on Lack of “Fiscal Cliff” Progress
  • Gold and Silver Vulnerable if Safe-Haven Demand Continues to Buoy US Dollar
  • US Industrial Production Data Unlikely to Yield Strong Response from Markets

A quiet economic calendar through the end of the trading week puts the spotlight on a rumored meeting between US President Barack Obama and Congressional leaders as the “fiscal cliff” fiasco continues to play out. With the election out of the way, the re-elected Democratic president must cobble together a deal with a divided Congress to avert the onset of steep tax hikes and spending cuts due to be triggered at the turn of the calendar year. The Congressional Budget Office (CBO) estimates that if the hefty dose of austerity is allowed to proceed as-is, it stands to trim US GDP growth by a hefty 0.6 percent in 2013, tipping the economy into recession in the first half of the year.

In an environment where investors are hoping a firming US recovery will help countervail headwinds from Europe and Asia, the prospect of such a scenario is decidedly negative for market sentiment. That means traders will closely monitor commentary from US officials, with signs of persisting deadlock likely to amplify risk-averse tendencies, sending cycle-sensitive crude oil and copper prices lower along with equity indexes. Gold and silver are at risk of following suit as the negative moodboosts haven demand for the US Dollar, putting de-facto downward pressure on metals denominated in terms of the benchmark currency. S&P 500 futures are pointing cautiously lower in late overnight trade, reinforcing the danger of a soft end to the trading week.

US Industrial Production data amounts to the last bit of noteworthy risk on the docket. Expectations suggest output grew 0.2 percent in October. This would mark a slowdown from the 0.4 percent increase recorded in the prior month but fall broadly in line with the 12-month average at 0.23 percent, hinting a print in line with expectations is unlikely to stir much by way of volatility.

WTI Crude Oil (NY Close): $85.45 // -0.87 // -1.01%

Prices continue to hover above the 50%Fibonacci expansion at 83.76.A break below that exposes 80.00 figure and the 61.8% level at 7978. Resistance is at 86.67, marked by a falling trend line set from the September 14 high and reinforced by the 38.2% Fib 87.66. A push above that aims for the 90.00 figure and the 23.6% expansion at 92.53.

Commodities_Oil_Gold_at_Risk_as_Markets_Focus_on_US_Budget_Woes_body_Picture_3.png, Commodities: Oil, Gold at Risk as Markets Focus on US Budget Woes

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1715.80 // -10.55 // -0.61%

Prices are turning lower resistance at 1732.33, the 23.6% Fibonacci retracement. Near-term support is at 1693.06, the 38.2% Fib, a barrier reinforced by a rising trend line set from late June (now at 1688.55). A drop beneath the latter level targets the 50% Fib at 1661.32. Alternatively, a push above resistance targets the 1790.55-1802.80 area

Commodities_Oil_Gold_at_Risk_as_Markets_Focus_on_US_Budget_Woes_body_Picture_4.png, Commodities: Oil, Gold at Risk as Markets Focus on US Budget Woes

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

Spot Silver (NY Close): $32.63 // -0.58 // -0.18%

Prices edged above resistance at 32.36, the 38.2% Fibonacci retracement, exposing the 33.51-66 area marked by the 23.6% level and a former range bottom as the next upside objective. The 32.36 level has been recast as support, with a drop back below that targeting the 38.2% Fib at 31.43.

Commodities_Oil_Gold_at_Risk_as_Markets_Focus_on_US_Budget_Woes_body_Picture_5.png, Commodities: Oil, Gold at Risk as Markets Focus on US Budget Woes

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

COMEX E-Mini Copper (NY Close): $3.462 // +0.008 // +0.23%

Prices are testing support at a rising trend line set from early October 2011 (3.403). A break downward initially targets horizontal support at 3.300. Near-term resistance is at 3.505, the 23.6% Fibonacci retracement, with a piercing above that exposing the 38.2% level at 3.568.

Commodities_Oil_Gold_at_Risk_as_Markets_Focus_on_US_Budget_Woes_body_Picture_6.png, Commodities: Oil, Gold at Risk as Markets Focus on US Budget Woes

Daily Chart - Created Using FXCM Marketscope 2.0

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

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

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