Talking Points

  •  Crude Oil Tracks Choppy Risk Sentiment Trends Ahead of EU Summit
  •  Gold and Silver Driven by QE3 Expectations, US Dollar Price Action

WTI Crude Oil (NY Close): $91.27 // +3.87 // +4.43%

Crude oil remains anchored to broad-based risk sentiment trends, with the outlook clouded as European stock exchanges and S&P 500 stock index futuresswing between gains and losses ahead of the opening bell on Wall Street. Traders appear unwilling to committo a directional bias before tomorrow's EU debt crisis summit, the last opportunity for policymakers to craft a coherent response to the sovereign risk fiasco plaguing the Euro Zone's periphery before a meeting of G20 finance ministers on November 3. The first round of talks held over the weekend produced little of substance. Indeed, while it is increasingly clear what the EU won't do to solve the crisis, what will be done remains largely unknown.

Choppy trade conditions are likely to persist until the outcome is unveiled, with brief intermissions for key US economic data along the way. October's Consumer Confidence reading as well as the Richmond Fed Manufacturing gauge set to cross the wires today and both reports are expected to yield the second consecutive month of improvement to reinforce the cautiously optimistic trend in US economic data in place since early June. Importantly, it is unclear whether such outcomes will prove supportive for risk appetite in terms of improving the outlook for global growth or detrimental in that stronger US performance undermines the case for additional quantitative easing.

On the technical front, prices invalidated the Bearish Engulfing candlestick pattern identified last week with a break above resistance at 90.62, the 38.2% Fibonacci retracement level. The bulls now aim to challenge the 50% level at $95.24. The 38.2% Fib has been recast as near-term support.

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Spot Gold (NY Close): $1653.48 // +11.10 // +0.68%

As we discussed yesterday, gold has found interim support amid dovish comments from the Federal Reserve's Janet Yellen and Daniel Tarullo late last week, capitalizing on its appeal as an inflation hedge as talk of a third round of quantitative easing (so-called QE3) re-entered market-wide conversation. The metal's ability to sustain gains seems limited however after Monday's hawkish remarks by Dallas Fed Governor Richard Fisher and an even-handed speech from New York Governor Bill Dudley reminded investors that the rate-setting FOMC is divided, with no signs of consensus in favor of more accommodation to speak of as yet.

The trajectory of the US Dollar remains an important force as well, acting as an indirect transmission mechanism of risk sentiment trends into the gold price. The recent upswing has helped amplify gold's gains via its downward pressure on the safe-haven currency, with the way forward to be largely guided by the outcome of Wednesday's EU debt crisis summit.Needless to say, a failure on the part of EU officials to secure a tangible plan to end current turmoil is set to boost the greenback, producing de-facto downward pressure on gold prices, and vice versa.

The technical landscape is unchanged from what we identified yesterday: Prices continue to consolidate in the $1600-1700 range that has persisted since late September. A bullish Piercing Line candlestick pattern at support hints an upswing is ahead, exposing initial resistance at $1660.55 followed by another challenge of the $1700 figure.

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Spot Silver (NY Close): $31.76 // +0.38 // +1.20%

As with gold, the evolving consensus on the probability of additional QE from the Federal Reserve and the trajectory of the US Dollar remain as the key drivers of silver price action. On the technical side of things, the broad outlines remain unchanged from what we described yesterday: prices put in a Bullish Engulfing candlestick pattern above support at $30.33, the 23.6% Fibonacci retracement level, hinting a challenge of the recent range top at the 38.2% Fib ($32.98) is ahead.

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