Commodities - Energy

Crude Oil Falls for First Time This Week

Crude Oil (WTI) - $91.07 // $0.33 // 0.36%

Commentary: Crude oil put in its first loss in four sessions, shedding $0.46, or 0.5%, to settle at $91.40, while Brent ticked $0.06, or 0.06%, lower to settle at $98.06. We can't make much of such a minor loss given the significant gains we have seen this week, so we won't. The only notable news on the day was the release of U.S. weekly jobless claims which ticked up to 445K, much higher than the 415K expectation, but this has been a volatile series and the consensus remains that the U.S. labor market is in a very gradual recovery.

We maintain that crude oil has priced in a lot of this year's positive outlook. To advance further from here, we would either need meaningful upside in emerging market demand (unlikely considering forecasts are already quite aggressive), an upside surprise in OECD demand (possible), a downside surprise in non-OPEC production (possible), or an upside surprise in OPEC production (very uncertain).

Technical Outlook: Prices have put in a bearish Dark Cloud Cover candlestick after retesting support-turned-resistance at rising trend line set from the swing bottom in November, hinting the upward correction has run its course and a move lower is ahead. Initial support lines up at $87.33.

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Commodities - Metals

Gold Moves Lower in Listless Trade

Gold - $1377.00 // $3.22 // 0.23%

Commentary: Gold fell $14.07, or 1.01%, to settle at $1373.78. Here is an excerpt from our latest Gold - FOREX Correlations report:

Taking a look at gold specifically, prices have so far been successful in holding an initial support level near $1360. The metal's fundamental underpinnings remain intact, as monetary policy remains extremely loose and investor interest remains high. Some cracks may be beginning to form in the bull thesis; however, as indications are that monetary conditions may begin to tighten later this year. Officials from both the ECB and BOE have begun to acknowledge inflation risks. Market-based interest rate expectations have risen in response, with traders anticipating two to three hikes from the central banks this year.

On the other hand, the Fed has shown no inclination to tighten policy anytime soon as it remains fully committed to carrying out its $600 billion quantitative easing program over the next two quarters. Additionally, even when monetary conditions were much tighter prior to the 2008 economic downturn, gold was steadily advancing. In fact, gold has risen for ten straight years, thorough boom and bust. The catalyst has been a surge in investment demand for the metal. To spur a meaningful downturn in prices, investment demand must soften. Why would higher interest rates or the prospect of higher interest rates have an impact now when they had no impact in the past? We are wary of taking any intermediate or longer-term bearish positions in gold until there is evidence that investor interest is waning.

Technical Outlook: Prices put in a Bearish Engulfing candlestick pattern below resistance at $1388.38, the 50% Fibonacci retracement of the 1/3-1/7 downswing, hinting the corrective upswing has run out of steam and opening the door for renewed selling. However, confirmation of a downward reversal requires a daily close below support at a rising trend line set from late October, now at $1366.62. Near-term support stands at $1379.96, the 38.2% Fib.

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Silver - $28.88 // $0.18 // 0.64%

Commentary: Silver fell a notable $0.99, or 3.32%, to settle at $28.69. ETF holdings were steady near 480 million troy ounces.

The gold/silver ratio rebounded to 47.7, remaining above the four-year low near 46 set last month. (The gold/silver ratio measures the relative value/performance of the two precious metals. A higher ratio indicates gold outperformance, while a lower ratio indicates silver outperformance)

Technical Outlook:  Prices reversed sharply lower at the $30.00 figure, dropping back to horizontal support at $28.32. A daily close below this level exposes $26.71. The $30.00 level remains as near-term resistance.

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