Talking Points

  •  Crude Oil Set to Follow S&P 500 Lower
  •  Gold May Not Find Gains in Risk Aversion

WTI Crude Oil (NY Close): $97.44 // +0.04 // +0.04%

S&P 500 stock index futures are ticking aggressively lower ahead of the opening bell on Wall Street, threatening to pull crude oil prices downward amid market-wide risk aversion. Investors are running for the exits after the US Congress put off voting on one of the proposed plans to raise the nation's debt ceiling, fueling risk aversion.

Concerns center on the implications of a failure to resolve the lingering impasse for the post-Great Recession recovery, threatening to push up US borrowing costs and sink growth in the globe's top economy even as stimulus-unwinding efforts weaken performance in the EU and China. The upcoming release of second-quarter US GDP figures reinforces this dynamic, with expectations calling for the weakest reading in a year at 1.8 percent.

Renewed Euro Zone sovereign risk worries compound the already tense environment after Moody's put Spain under review for a ratings downgrade, arguing the EU's ambitious Greek bailout will encourage markets to stress-test other "PIIGS" nations and force government funding difficulties.

On the technical front, prices are testing the bottom of a bearish Rising Wedge chart formation carved out since late July, with negative RSI divergence bolstering the case for a downside scenario. A breakdown sees initial support at $94.15. The psychologically critical $100/barrel figure continues to mark near-term resistance.

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Spot Gold (NY Close): 1615.95 // +2.30 // +0.14%

The inverse correlation between gold and S&P 500 - while still significant - continues to erode as renewed Euro Zone sovereign concerns bolster the US Dollar and trim the yellow metal's ability to capitalize on risk aversion. The US debt ceiling debate appears to be the make-or-break factor at the moment: if the US fiasco becomes the center of attention as Wall Street comes online, a reasonable scenario to be sure, gold may be seen as the better safe-haven play into the week-end.

With that in mind, two alternative scenarios are important to keep in mind. First, the US debt impasse has already sent billions in jittery capital out of asset allocation and into cash, which pressures the US Dollar higher. Second, ultra-low US borrowing costs are likely to be pressured higher as uncertainty on the deficit-reduction front persists, squashing inflation expectations and sapping demand for gold both as a hedge against rising prices and as an asset that yields nothing.

Prices remain wedged between the upper boundary of a rising channel established from mid-July and a former range top at $1604.55. A break below support exposes the channel bottom, now at $1595.30. Channel resistance is now at $1627.20. Negative RSI divergence argues in favor of a downside scenario. The longer-term setup is broadly bullish, but warning signs have started to emerge.

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Spot Silver (NY Close): $39.77 // -0.51 // -1.27%

Silver continues to broadly mimic the trading dynamics of its more expensive counterpart, aligning the fundamental forces guiding both precious metals. Technical positioning has turned more bearish after prices took out rising trend line support set from early July to expose the 38.2% Fibonacci retracement level at $39.01. Near-term resistance remains at $41.06.

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