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Commodities – Energy
Crude Oil Pauses to Digest Recent Gains
Crude Oil (WTI) - $89.08 // $0.30 // 0.34%
Commentary: Monday was a day of pause for financial markets as risk assets consolidated the huge gains from last week. Crude managed to eke out a $0.19, or 0.21%, gain to settle at $89.38 after spending most of the session with minor losses. Similarly, U.S. equities finished mixed, with major indices closing on either side of the unchanged mark.
Many market participants took their cues from a broadcast interview with Fed Chairman Ben Bernanke. The Chairman maintained a cautious outlook on the U.S. economy, but indicated that the central bank stands ready to provide additional support if necessary. He even indicated that a third quantitative easing program was a possibility. This is all unequivocally bullish for risk assets, including crude.
We continue to expect that prices will advance well into the $90’s before any meaningful correction. There are no notable economic events for Tuesday, thus oil may take its cues from movements in U.S. equities. There too the bias is higher.
Technical Outlook: Prices have stalled having taken out resistance at $88.63, the 11/11 swing high, with negative RSI divergence hinting the rally may not have much space to continue. Initial resistance stands at $90.65, the intersection of the 123.6% Fibonacci extension of the 11/11-11/17 downswing, and the top of a rising channel carved out since late August. The $88.63 level has been recast as near-term support.
Commodities – Metals
Gold Surges to Records on Mention of QE3
Gold - $1421.07 // $2.68 // 0.19%
Commentary: Gold advanced to a new record high on Monday, adding $9.68, or 0.68%, to settle at $1423.75. There is no specific catalyst we can point to for the move, as the drivers of gold have been well established for some time now.
As we mentioned in the crude section above, Fed Chairman Ben Bernanke noted in an interview that ‘QE3,’ or a third quantitative easing program, was a possibility. In other words, monetary policy will stay loose for a long time to come—obviously bullish for gold.
With prices rising so rapidly, it is only a matter of time before those with enormous gains opt to lock in those profits, spurring profit taking. We would look to the technical outlook for guidance.
Technical Outlook: Unchanged from yesterday: “On a daily closing basis, gold finished last week at a new record high. However, acute negative RSI divergence hints bullish momentum may not have much staying power. Resistance stands at $1424.60, the 11/9 wick high, while initial support lines up at the 14.6% Fibonacci retracement of the 7/28-11/9 advance ($1385.53).”
Silver - $30.07 // $0.08 // 0.25%
Commentary: Silver settled over $30 for the first time in 30-years, with the metal advancing $0.74, or 2.53%, on Monday. The only way to describe this ascent is “parabolic” with the move reminiscent of many bubbles throughout history. On the other hand, the huge influx of capital into silver ETFs and other financial products is a game changer, thus we aren’t ready to jump to any conclusions.
The gold/silver ratio fell again and now stands at 47.2, the lowest level since February 2007. (The gold/silver ratio measures the relative performance of the two precious metals. A higher ratio indicates gold outperformance, while a lower ratio indicates silver outperformance).
Technical Outlook: Silver has stalled ahead of resistance at $30.39, the 123.6% Fibonacci extension of the 11/9-11/16 decline, with negative RSI divergence hinting the path of least resistance leads lower. Initial support lines up at $29.36, the 11/9 swing high.
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