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Commodities: Gold, Crude Oil Look to Fiscal Cliff Talks for Direction

Commodities: Gold, Crude Oil Look to Fiscal Cliff Talks for Direction

Ilya Spivak, Head Strategist, APAC

Crude oil and gold prices are at the mercy of US lawmakers as all eyes remain on Washington, DC in hopes of a deal to avoid the fast-approaching “fiscal cliff”.

Talking Points

  • Crude Oil, Copper to Rise with Stocks if “Fiscal Cliff” Deal is Achieved
  • Gold and Silver to Reflect Dollar’s Response to US Budget Negotiations

The spotlight remains on Washington, DC as financial markets return from the Christmas holiday, where US policymakers have a mere five days left to deliver a deal avoiding the so-called “fiscal cliff”. The markets’ baseline scenario appears to call for a last-minute compromise that avoids an immediate fiscal shock but falls short of setting US public finances on a sustainable long-term path. The emergence of a loose framework for negotiating a “grand bargain” in the future also seems to be baked in.

While a watered-down accord is undeniably better for market-wide risk appetite than none at all, follow-through is likely to be limited to a short-term advance reflecting the dissipation of uncertainty. Indeed, with investors’ forecasts validated, the impetus for speculation evaporates. For commodities, this portends an uptick in cycle-sensitive crude oil and copper prices. Gold and silver may likewise find near-term support amid ebbing haven demand for the US Dollar.

WTI Crude Oil (NY Close): $90.98 // +2.37 // +2.67%

Prices are testing resistance at 91.23, the intersection of the 61.8% Fibonacci expansion and the top of a rising channel set from early November. A break higher targets the 76.4% level at 92.01. Support is at 90.59, the 50% Fib, with a drop below that exposing the 38.2% expansion at 89.98.

Commodities_Gold_Crude_Oil_Look_to_Fiscal_Cliff_Talks_for_Direction_body_Picture_4.png, Commodities: Gold, Crude Oil Look to Fiscal Cliff Talks for Direction

8hr Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1659.75 // +0.85 // +0.05%

Prices mounted a shallow recovery from support at 1630.97, marked by the 100% Fibonacci expansion and reinforced by the bottom of a falling channel set from mid-September.The 76.4% expansion at 1659.90 is acting as near-term resistance, with a move above that targeting the 61.8% mark at 1677.84. Alternatively, a reversal below 1630.97 aims for the 123.6% Fib at 1601.78.

Commodities_Gold_Crude_Oil_Look_to_Fiscal_Cliff_Talks_for_Direction_body_Picture_3.png, Commodities: Gold, Crude Oil Look to Fiscal Cliff Talks for Direction

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

Spot Silver (NY Close): $30.01 // +0.06 // +0.19%

Prices are stalling after breaking through support at 30.78,the 76.4% Fibonacci expansion.Near-term support is now at 29.66, the 100%level, with a break below that exposing the 123.6% expansion at 28.55. The 30.78 level has been recast as near-term resistance. A reversal back above that targets the 61.8% level at 31.47.

Commodities_Gold_Crude_Oil_Look_to_Fiscal_Cliff_Talks_for_Direction_body_Picture_2.png, Commodities: Gold, Crude Oil Look to Fiscal Cliff Talks for Direction

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

COMEX E-Mini Copper (NY Close): $3.598 // +0.052 // +1.47%

Prices are testing above resistance at 3.596, the 23.6% Fibonacci expansion. A break higher exposes the 38.2% level at 3.643. Near-term support is at 3.522, the December 20 low, with a decline below that aiming for a rising trend line at 3.450.

Commodities_Gold_Crude_Oil_Look_to_Fiscal_Cliff_Talks_for_Direction_body_Picture_1.png, Commodities: Gold, Crude Oil Look to Fiscal Cliff Talks for Direction

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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