Talking Points

  •  Crude Oil Gains Hinted Ahead as S&P 500 Futures Edge Higher
  •  Gold Outlook Hinges on Traders' Reading of US Retail Sales Data

WTI Crude Oil (NY Close): $90.21 // +2.02 // +2.29%

Risk appetite is seesawing overnight and clouding the outlook for crude oil following conflicting comments from China on its willingness to aid debt-stricken Euro Zone countries. Sentiment soured after Chinese Premier Wen Jiaobao seemingly wrote off assistance in a speech at the World Economic Forum, but confidence roared back after vice chairman of the National Development and Reform CommissionZhang Xiaoqiang was quoted as saying China would still buy bonds from the so-called PIIGS nations.

Looking ahead, all eyes are on the US Retail Sales report, wheremedian forecasts call for receipts to rise 0.2 percent in August, marking the weakest reading in three months. However, a Citibank gauge of US economic data surprises suggests indicators of performance in the world's top economy have been steadily improving since hitting a bottom in early June, hinting there is a scope for a better-than-expected outcome.

The result will be interpreted in light of next week's FOMC monetary policy meeting and its implications for the likelihood that another aggressive round of stimulus will be unveiled to bolster the increasingly anemic recovery. Interestingly, this means risk appetite (and thereby the WTI contract) may actually come under pressure following a strong result that would make additional easing comparatively less likely.

Technical positioning closely mirrors that of the S&P 500, with prices testing the top of a Flag chart formation reinforced by the upper boundary of a rising channel set from early May. Here too, the setup is hinting at bearish continuation pattern, with initial support lining up at the 23.6% Fibonacci extension level ($83.12).

Crude_Oil_Gold_Look_to_US_Retail_Sales_Report_for_Direction_body_Picture_3.png,

Spot Gold (NY Close): 1833.60 // +18.30 // +1.01%

Gold continues to show a strong inverse relationship with the S&P 500, hinting at losses ahead as futures tracking the benchmark equity index rise ahead of the opening bell on Wall Street. Much is likely to depend on the US Retail Sales report and its implications for US monetary policy as next week's FOMC rate decision draws ever-closer. As with risk appetite in general, two scenarios are possible. If a better-than-expected outcome is interpreted as sentiment-positive in that it tells a supportive story about the pace of recovery in the US and the world at large, gold may move lower as S&P futures now suggest. Alternatively, if it is seen as sentiment-negative in that it makes additional stimulus less likely, the opposite will be the case. Needless to say, a worse-than-expected result has the potential to produce the reverse versions of both of these scenarios.

The technical landscape is largely unchanged from yesterday, save for the implied measured target level which has been adjusted higher to reflect the upward slope of current support: A pair of Bearish Engulfing candlesticks may be marking a double top below the $1900 figure, with confirmation seen on a break of an upward-sloping neckline established since early August. Negative RSI divergence bolsters the case for a downside scenario. A breakdown at current levels would aim toward a measured target close to $1633.04, although an actual close below trend line support is needed before the implied objective can be calculated precisely.

Crude_Oil_Gold_Look_to_US_Retail_Sales_Report_for_Direction_body_Picture_4.png,

Spot Silver (NY Close): $40.99 // +0.71 // +1.76%

As with gold, a great deal rests on the markets' response to US retail sales figures, with the scenarios outlined above for the yellow metal broadly mirrored in silver prices. With that said, the rise in S&P 500 stock index futures ahead of the Wall Street open points to a rebound in risk appetite that ought to weigh on silver prices.

The technical layout remains broadly unchanged from yesterday: a Head and Shoulders top developing below the $44.00 figure. A break through rising trend line support set from late July (which doubles as the Head and Shoulders setups' neckline) exposes a measured target of $33.28.

Crude_Oil_Gold_Look_to_US_Retail_Sales_Report_for_Direction_body_Picture_5.png,