Members login
Crude Oil Supported by Economic Optimism, Gold Bumps Up Against $1300
Written by article default Monday, 27 September 2010 12:25
Commodities – EnergyCrude Oil Supported by Economic Optimism
Crude Oil (WTI) - $76.49 // $0.00 // 0.00%
Commentary: Crude oil is starting the new week on a flat note, as the commodity digests solid gains from last week. The period’s 3.8% gain, capped by a three-day win streak between Wednesday and Friday, was noteworthy considering the stark underperformance by oil in the weeks prior. The obvious question is whether crude oil is now in the midst of a more significant uptrend or whether the commodity is poised to fall back down again. Eyeing the fundamentals for guidance yields contrasting views. On the one hand, supplies are elevated with multi-decade high inventories in the U.S. and immense spare capacity within OPEC. On the other hand, the global growth outlook has improved dramatically in recent weeks, spurring a rally in risk assets across the board. A plausible outcome is for a resumption of the strong correlation between crude oil and equities that we saw before this latest period of underperformance. But just as plausible is a decline in oil to lower levels in the event the inventory surplus continues to mount. This ambivalent outlook suggests that crude oil will remain range bound as it has been for the past year between the low $60’s and high $80’s. Until prices approach one of the boundaries of the range, we would be on the sidelines.
Technical Outlook: Prices have broken back above support-turned-resistance at the $75.59 level having found support at a minor rising trend line established from Augusts’ swing low. The bulls now aim to challenge $78.04.
Commodities – Metals
Gold Bumps Up Against $1300
Gold - $1296.75 // $0.80 // 0.06%
Commentary: Last Friday saw gold prices briefly surpass $1300 before settling at the new record closing level of $1295.95. Month-to-date the metal is now up 4.2%, while year-to-date it is up 18.1%. With gold now completely disconnected from day to day financial and economic developments, price movement will be determined by the whims of traders. Sooner or later profit taking will emerge, but in the game of musical chairs, there is no way to know when that will be. Furthermore, the metal should be well-supported on any dip as those that missed out on the rally look to buy.
Technical Outlook: Prices continue inching higher along the upper boundary of a rising channel set from the swing bottom in late July as the bulls flirt with the psychologically critical $1300.00 figure. Resistance is reinforced by the 138.2% Fibonacci extension of the 6/21-7/28 downswing at $1306.66. Near-term support lines up at $1290.85, the 123.6% Fib, with a break below that exposing the channel bottom, now at $1268.07.
Silver - $21.45 // $0.01 // 0.06%
Commentary: With month-to-date and year-to-date gains of 10.9% and 27% respectively, silver has been acting like gold on steroids. Investors have been looking to the “cheaper” metal to gain precious metals exposure. The gold/silver ratio has plunged in recent weeks, reaching 60.45, the lowest since October 2009. The ratio measures the relative performance of the two metals. A higher ratio means gold is outperforming, while a lower ratio means that silver is outperforming.
Technical Outlook: Prices are treading water having jumped to a new record high at $21.47 last week. From here, the door is open for a test of the $22.00 figure, followed by resistance at the top of a multi-year rising channel that has confined prices since the major swing low in late 2008, now at $22.73.
Click here to learn more about DailyFX.