Broadly speaking, crude oil positioning is little changed over the past two weeks, with prices carving out a triangle chart formation below $103.30. The setup is typically indicative of trend continuation, which argues for losses in this case considering the WTI contract entered consolidation following a sharp decline. Although crude remains closely correlated with the S&P 500, it managed to decouple from the stocks selloff in New York trade in the aftermath of unnerving remarks from Fed Chairman Ben Bernanke, as API reported that inventories dropped the most since December last week.
Looking ahead, there seems to be ample scope for a catch-up, with S&P 500 index futures pointing the way lower as markets continue to reel from Bernanke’s simultaneous worries about an “uneven” and “frustratingly slow” recovery and apparent dismissal of further stimulus, with emphasis placed on limiting inflation and an allusion to the “prospect of increasing fiscal drag” on the economy (implying the Fed is expecting US Treasury bond yields to rise as QE2 expires). Downward pressure may be compounded as the US central bank releases its Beige Book regional economic conditions survey, which is likely to reinforce signs of an acute slowdown heading into the end of the second quarter.
Beyond sentiment trends, sellers may find additional reasons push crude lower amid rumors that OPEC will raise its production quote at today’s meeting in Vienna. Official Department of Energy inventory figures are also on tap. A break through the triangle formation’s bottom exposes supports at $96.43 and $92.54
Commodities – Metals
Gold Outlook Still Clouded, Silver Appears Vulnerable
Spot Gold (NY Close): $1544.15 // -0.50 // -0.03%
Prices remain wedged between$1533.12 and $1549.91, the 61.8% and 76.4% Fibonacci retracements of the drop from the May 2 high, respectively. As we discussed in our weekly forecast, the standstill reflects continued uncertainty about gold’s place in today’s bipolar marketplace, with most assets clearly established on the “risky asset” or “safe haven” side of the spectrum. On balance, a slow rebound in investment demand seems to suggest that the path of least resistance is broadly higher. Indeed, gold ETF holdings hit a monthly high at 66.2 million today.
With that in mind, the near-term outlook remains clouded, with the key question on the table being whether the forthcoming drop in the S&P 500 alluded to in overnight index futures positioning will owe to the unwinding of Dollar-funded positions ahead of the expiration of QE2 (a gold-negative scenario) or to a dour outlook on US economic growth (a gold-positive scenario). Ultimately, we shall have to wait and see.
Spot Silver (NY Close): $37.16 // +0.37 // +0.99%
As with gold, silver is finding it difficult to find its place in the current market environment. Technically speaking, a triangle continuation pattern appears to be taking shape below the 38.2% Fibonacci retracement of the drop the late April high at $38.88, with the preceding decline arguing for renewed selling ahead. Initial support lines up at $36.37, the 23.6% Fib, followed by the triangle’s lower boundary as well as the minor 14.6% retracement level at $34.83. A daily close below the latter boundary exposes the May 12 low at $32.32.
