Talking Points

  •  Crude Oil, Copper Aim Higher Before Growth-Supportive US Data
  •  Gold and Silver Likely to Rebound But Larger Down Trend Underway

Gold and silver prices plunged yesterday after Fed Chairman Ben Bernanke said the fall in US unemployment has been more rapid than the central bank expected in his semi-annual Congressional testimony, hinting a third round of asset purchases (so-called QE3) would not materialize. The downgrade in dovish rhetoric weighed on stock prices - boosting demand for the Dollar as a safe haven - while denting demand for metals as an alternative store of value amid fading worries about further dilution of the US money supply.

Taken together with the downgraded risk of a Eurozone-driven global credit squeeze following yesterday's second 3-year ECB LTRO operation, Bernanke's testimony went a long way toward laying the foundation for 2012 market environment we described in our 6-month gold forecast. As we wrote then, a stronger US recovery that negates the need for further money-printing against a backdrop of receding fears of a market-wide collapse courtesy of the Euro area is decidedly gold-negative. The same logic applies to silver, the yellow metal's cheaper alternative. With that in mind, a near-term recovery seems likely ahead given the scope of yesterday's selloff and the need for a correction.

Meanwhile, crude oil and copper prices are aiming higher as traders rethink the growth implications of the Bernanke testimony. Investors' knee-jerk reaction was to sell risky assets as additional stimulus hopes faded, but that need not be a lasting response if the economy is truly able to stand on its own without further support from monetary policy. Evidence precisely to that effect is expected to cross the wires today.

The ISM Manufacturing report takes top billing, with median forecasts calling for the factory sector to expand at the fastest pace in 8 months in February. A rebound in January's Personal Spending reading as well as continued growth in the Personal Income gauge are also in the cards. This is fueling risk appetite, with S&P 500 stock index futures on the upswing ahead of the opening bell on Wall Street, and growth-linked commodities are broadly following suit.

WTI Crude Oil (NY Close): $107.07 // +0.52 // +0.49%

Prices are stalling at support marked by the 50% Fibonacci expansion at 106.70. A Bearish Engulfing candlestick pattern hints the path of least resistance favors the downside. A break lower initially exposes the 38.2% retracement of the 2/2-2/24 up leg at 104.38, followed by the 38.2% extension at 103.34. Near-term resistance is at 110.04, the 61.8% Fib expansion.


Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1696.85 // -87.38 // -4.90%

Prices reversed sharply lower, dropping to 38.2% Fibonacci retracement support at 1687.97. A break below this boundary exposes the 50% level at 1656.38. Near-term resistance lines up at 1727.06, the 23.6% Fib, with a daily close above that targeting the December 2 high at 1763.00.


Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $34.68 // -2.23 // -6.03%

Prices completed a Bearish Engulfing candlestick pattern below resistance at 36.99, reversing sharply lower to take out 23.6% Fibonacci retracement support at 34.81. Bears now aim to challenge the 38.2% level at 33.15. The 34.81 level has been recast as near-term resistance.


Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.880 // -0.042 // -1.07%

Prices put in a Bearish Engulfing candlestick pattern below resistance at 3.909, hinting renewed selling is ahead. Initial support lines up at 3.789, with a break below that exposing 3.696. Alternatively, a reversal higher through resistance exposes the February 9 high at 3.988.


Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for

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