Commodities: Crude Oil Vulnerable, Gold Has Scope to Rebound

DailyFX

Crude oil prices are vulnerable as risk aversion grips financial markets anew while gold may find support as traders rethink the chances of an early end to Fed stimulus.

Talking Points

  • Crude Oil and Copper Vulnerable as “Fiscal Cliff” Deal Optimism Dissipates
  • Gold, Silver May Find Support as Traders Rethink Early End to Fed Stimulus

Cycle-sensitive crude oil and copper prices are under pressure in European trade with risk appetite on the defensive to start the trading week. A short lull in big-ticket event risk this week opens the door for investors to digest last week’s volatility. On the docket to be reconsidered are the last-minute deal avoiding the “fiscal cliffand December’s FOMC meeting minutes.

The former may not prove to be as risk-supportive as the initial reaction suggested.The US tax environment is now relatively more adverse from a growth perspective compared with the past two years. Furthermore, fears of growing headwinds from US austerity may emerge as spending cuts enter the equation amid legislative battles surrounding the “debt ceiling” and the “sequester” cuts due to trigger in two months.

On balance, this suggests the path of least resistance favors risk aversion, hinting crude oil and copper may follow stocks lower over the near term. Indeed, S&P 500 index futures are ticking lower ahead of the opening bell on Wall Street.

Meanwhile, precious metals may find a bit of support as fears about an early end to Federal Reserve stimulus moderate. Investors seemed surprised after minutes from December’s policy sit-down hinted that the adoption of the “Evans rule” may bring about normalization faster than previously expected. However, even a very optimistic scenario where the Fed stops assets purchases by mid-year would see the balance sheet expand by a hefty $0.5 trillion. With that in mind, inflation-hedge assets including gold and silver may reclaim some lost ground as this realization filters into the markets.

WTI Crude Oil (NY Close): $93.09 // +0.17 // +0.18%

Prices put in a Hanging Man candlestick below resistance at 93.25, the 100% Fibonacci expansion, hinting a move lower is ahead. Near-term support is in the 91.23-92.01 area, marked by the 61.8% and 76.4% Fibs respectively. This barrier is reinforced by the formerly broken top of a rising channel top set from early November.A drop below 91.23 exposes the 90.00 figure. Alternatively, a reversal above 93.25 aims for the 123.6% expansion at 94.51.

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Commodities_Crude_Oil_Vulnerable_Gold_Has_Scope_to_Rebound_body_Picture_4.png, Commodities: Crude Oil Vulnerable, Gold Has Scope to Rebound

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1655.65 // -8.30 // -0.50%

Prices reversed lower from resistance at a falling trend line set from late November to test support at the 38.2% Fibonacci expansion (1649.37). A break below this boundary exposes the 50% level at 1635.24. Near-term resistance is at 1666.86, the 23.6% Fib, with turn back above that eyeing the trend line (now at 1685.77) anew.

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Commodities_Crude_Oil_Vulnerable_Gold_Has_Scope_to_Rebound_body_Picture_3.png, Commodities: Crude Oil Vulnerable, Gold Has Scope to Rebound

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

Spot Silver (NY Close): $30.21 // +0.04 // +0.13%

Prices reversed sharply lower from support-turned-resistance at the bottom of a falling channel set from late November (31.21), with sellers now testing the 38.2% Fibonacci expansion at 29.64. A break below that targets the 50% level at 29.07. Near-term resistance is at 30.33, 23.6% Fib.

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Commodities_Crude_Oil_Vulnerable_Gold_Has_Scope_to_Rebound_body_Picture_2.png, Commodities: Crude Oil Vulnerable, Gold Has Scope to Rebound

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

COMEX E-Mini Copper (NY Close): $3.694 // -0.024 // -0.65%

Prices are testing below support at 3.680, the 50% Fibonacci expansion. A break below that targets the 38.2% level at 3.643. Near-term resistance is at 3.718, marked by the 61.8% expansion, with a reversal above that aiming for the 76.4% Fib at 3.764.

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Commodities_Crude_Oil_Vulnerable_Gold_Has_Scope_to_Rebound_body_Picture_1.png, Commodities: Crude Oil Vulnerable, Gold Has Scope to Rebound

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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