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Crude Oil Surges with Risk Appetite, Gold Soars on Momentum and Dollar
Written by article default Thursday, 14 October 2010 03:56
Commodities – EnergyCrude Oil Surges with Risk Appetite
Crude Oil (WTI) - $83.75 // $0.74 // 0.89%
Commentary: A surge in risk appetite sent crude oil higher on Wednesday, with the commodity adding $1.34, or 1.64%, on the session. We have been pointing out that the correlation between crude oil and equities has been extremely strong recently. Thus, when equities rose on the back of robust earnings from bellwether corporations such as JP Morgan Chase and Intel, oil tagged along for the ride. All risk assets in general continue to benefit from a brightening global economic outlook. Granted, there still remains concern with regard to the U.S. economic outlook in particular, but even that has improved after the Fed stated in clear terms its intention to provide more stimulus if necessary.
The DOE inventory report will be released tomorrow, one day later than usual due to the Columbus day holiday. The API survey, which is a less-authoritative industry source that attempts to measure the same inventory movements, showed that crude oil inventories declined 4 million barrels, gasoline inventories declined 1.9 million barrels, and distillate inventories declined 0.3 million barrels last week. Those numbers are much more bullish than the 5-year average. Tomorrow will update you with charts on all the latest figures.
Technical Outlook: Positioning has been effectively unchanged since prices put in a Bearish Engulfing candlestick pattern following a test of resistance at Augusts’ swing high ($82.97) last week, hinting that a move lower is ahead. A break below initial support at $81.20 – the 23.6% Fibonacci retracement of the latest upswing – exposes the 38.2% and 50% levels at $79.21 and $77.60, respectively.
Commodities – Metals
Gold Soars on Momentum and Dollar
Gold - $1377.10 // $4.95 // 0.36%
Commentary: Gold soared $21.80, or 1.61%, on Wednesday. The excuse was another drop in the U.S. dollar, but gold really didn’t need an excuse. Momentum continues to be the primary driver for the current move in the metal. Wednesday was another day in which gold ETF holdings held steady, suggesting that this move in price is unsustainable. But sustainable or not, there is money to be made, and lots of it, when the trend is so powerfully to the upside. Traders should continue to maintain long positions, making sure to have a robust exit strategy for when the inevitable turn takes place.
Technical Outlook: Prices have jumped to a new record high to meet resistance at the top of a rising channel in place since mid-September (now at $1377.87). A push above this barrier exposes the $1400 figure as well as the top of a larger rising channel established from the cyclical low in October 2008, now at $1457.78. Near-term support lines up at $1345.30, the shorter-term channel bottom.
Silver - $24.29 // $0.29 // 1.22%
Commentary: Silver did what we now expect it to do. That is, outperform gold. So while gold rose 1.61%, silver rose $0.67, or 2.85%. The gold/silver ratio in turn plummeted to 56.69, or the lowest level since August 2008. (The gold/silver ratio measures the relative performance of the two precious metals. A higher number indicates gold outperformance, while a lower number indicates silver outperformance.)
Technical Outlook: Prices have broken out to set a new 30-year high above the $24.00 figure, rising to meet resistance at $24.40, the 123.6% Fibonacci extension of the Mar’08-Oct’08 downswing. A pullback sees initial support lines up at $23.18 while a break higher exposes the $25.00 figure.
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