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Gold Breaks Out While Oil and Copper Dip as China Jitters Continue

Gold Breaks Out While Oil and Copper Dip as China Jitters Continue

2014-03-12 06:13:00
David de Ferranti, Currency Analyst
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Talking Points

  • WTI falls below $100.00 with technicals hinting at further declines
  • Gold advances on $1,360 following a breakout in Asian trading
  • Risk trends and China data to offer further guidance on copper and crude

Crude oil and copper resumed their descent during US trading overnight as ongoing jitters surrounding China likely weighed on investor sentiment. Meanwhile gold has broken above the $1,351 mark in Asian trading with the precious metal benefiting from safe-haven flows.

WTI Slips Below $100.00

Following a stabilisation of prices during Asian trading yesterday the crude oil bears emerged during US hours and pushed the WTI contract back below the $100.00 handle. Broad-based risk aversion was likely a contributor given that declines were also witnessed in US equity indices.

Upcoming inventories data may provide the commodity further directional cues. The DOE’s Weekly Petroleum Status Report is expected to reveal a build in crude inventories of 2,000K barrels - according to the median estimate from economists. This would make it the 8th consecutive weekly gain for the measure and may reflect lower demand for crude oil. Newswires have attributed the build in inventories to seasonal factors including more moderate weather on the US East Coast and lower demand from refineries.

Geopolitical Risks Remain

Gold has spiked towards the $1,360 level in early Asian trading as nervous investors are likely moving away from the equities space and looking towards the precious metal as a potential safe-haven. Elevated geopolitical tensions in Eastern Europehave helped drive gold to its current levelsas the Ukrainian-Russian stand-off continues. Indeed, the chart below illustrates that the yellow metal tends to strengthen during periods of heightened geopolitical risk. Thus a further escalation in Ukraine would likely bode well for gold.

Gold_Breaks_Out_While_Oil_and_Copper_Dip_as_China_Jitters_Continue_body_Chart_6.png, Gold Breaks Out While Oil and Copper Dip as China Jitters Continue

Risk Trends To Offer Compass For Commodities

The commodities space is likely to continue to take cues from broader risk-trends in the session ahead. The declines in copper and crude oil witnessed during US trading overnight suggests a risk-off move is possible even in the absence of major negative news-flow. Thus although there is a light economic docket during European and US hours, there could easily be a continued decline for growth-sensitive commodities, while gold could strengthen further. Traders will also likely be on their toes ahead of upcoming Chinese Retail Sales and Industrial Production figures, which could stand to exacerbate existing concerns over economic growth in the Asian giant and put further pressure on copper and crude oil.

CRUDE OIL TECHNICAL ANALYSIS A bearish technical bias is retained for crude oil as the commodity continues to exhibit signs of a downtrend. This follows on from a Dark Cloud Cover formation on the daily that foreshadowed a bearish reversal. Additionally, the rate of change indicator has grown more negative, signaling building downside momentum. Buying support may emerge at the 50% Fib Retracement Level at $98.30.

Gold_Breaks_Out_While_Oil_and_Copper_Dip_as_China_Jitters_Continue_body_Picture_5.png, Gold Breaks Out While Oil and Copper Dip as China Jitters Continue

Daily Chart - Created Using FXCM Marketscope 2.0

NATURAL GAS TECHNICAL ANALYSIS Buyers remain prepared to support the natural gas price at the 4.450 mark as the commodity stabilizes following dramatic declines at the end of February. With the 20 SMA signaling a downtrend, a corrective bounce at this stage would be seen as an opportunity to enter new short positions. Resistance is likely looming at former support near 4.917 (the 61.8% Fib Retracement level).

Gold_Breaks_Out_While_Oil_and_Copper_Dip_as_China_Jitters_Continue_body_Picture_4.png, Gold Breaks Out While Oil and Copper Dip as China Jitters Continue

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS Gold has seemingly shrugged off a bearish reversal signal provided by the Dark Cloud Cover candlestick formation on the daily. With prices holding within their upward trend channel and above the 20 SMA the uptrend remains intact. The October 2013 high at $1,360 is likely to prompt some sellers to emerge.

Gold_Breaks_Out_While_Oil_and_Copper_Dip_as_China_Jitters_Continue_body_Picture_3.png, Gold Breaks Out While Oil and Copper Dip as China Jitters Continue

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS A downtrend has emerged for silver signaled by the 20 SMA and ROC indicator. Shorts are preferred on a break below former resistance-turned-support at $20.50, which would open up the prior range-low at $19.00.

Gold_Breaks_Out_While_Oil_and_Copper_Dip_as_China_Jitters_Continue_body_Picture_2.png, Gold Breaks Out While Oil and Copper Dip as China Jitters Continue

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS The bears have regained their grip on copper pushing the metal to its October 2011 low at $2.930. While we retain a bearish technical bias for the commodity, given the magnitude of the recent declines, chasing further falls may carry too much risk. As such new short entries are preferred on a corrective bounce.

Gold_Breaks_Out_While_Oil_and_Copper_Dip_as_China_Jitters_Continue_body_Picture_1.png, Gold Breaks Out While Oil and Copper Dip as China Jitters Continue

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by David de Ferranti, Market Analyst, FXCM Australia

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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