Talking Points

  • Crude Oil Set to Gain as Stocks Rise Again on Wall Street
  • Gold Likely to Continue Lower as Risk Appetite Recovers

WTI Crude Oil (NY Close): $85.72 // +2.83 // +3.41%

Crude oil prices remain firmly anchored to sentiment trends, with prices closely tracking the S&P 500. Futures tracking the benchmark stock index swung into positive territory in European hours having traded lower in Asia after France, Spain, Italy and Belgium imposed short-selling bans to stabilize markets.

Surprise data release from China also helped buoy sentiment, with the world's second-largest economy reporting that New Yuan Loans fell to the lowest in seven months (492.6B) while the broadest measure of the money supply (M2) grew just 14.7 percent in the year to July, the least since May 2005. The reports stoked hopes Beijing would slow its efforts to slow the economy implemented to prevent overheating, thereby boosting confidence in the overall global recovery.

The pickup in risk appetite bodes well for crude, hinting the WTI contract might finish a volatile week on an up note. Looking ahead, all eyes are US Retail Sales and University of Michigan Consumer Confidence figures. Mixed results are expected as the former rebounds to post the strongest increase in four months while the latter issues the third consecutive drop to the lowest level since March 2009.

Prices edged above resistance at $85.24, the 38.2% Fibonacci retracement of the 7/26-8/9 decline, exposing the 50% level at $88.18. While RSI studies continue to point to oversold conditions, the penetration higher was very narrow, so betting on strong conviction given recent volatility solely on the basis of a hairline penetration above a minor technical level seems ill-advised. Initial support is found at $81.60.

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Spot Gold (NY Close): 1764.10 // -28.95 // -1.61%

A recovery in risk appetite threatens to undermine gold prices for a second day amid fading safe-haven demand. Indeed, short-term correlation studies continue to show a significant inverse relationship between gold and the S&P 500 and the pickup in futures tracking the index ahead of the opening bell on Wall Street bode ill for the yellow metal.

Notably, the macro-level headwinds facing the global recovery remain firmly in place, with output growth slowing across the major engines of performance while the EU debt fiasco remains unresolved and seems poised to get worse before it gets better. With that in mind, the path of least resistance favors risk aversion and any near-term improvement (which corresponds to lower gold prices) is likely corrective.

Prices produced a bearish Evening Star candlestick pattern below the $1800 figure and eased through support at $1773.26 - the 23.6% Fibonacci retracement - to challenge the 38.2% level at $1747.76. Negative RSI divergence continues to argue for a bearish bias, with a break below immediate support exposing a key barrier at $1727.15, the intersection of the 50% Fib and channel top resistance-turned-support. Through here would neutralize immediate upside pressure for a more neutral tone in the near term.

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Spot Silver (NY Close): $38.72 // -0.56 // -1.43%

Silver seems to be trading as a safe haven in the current bipolar "risk vs. safety" environment, though the the relationship is far from being as well-defined as it is for gold. Still, the pick-up in S&P 500 futures in European trade broadly hints the metal is poised lower into the end of the trading week.

Technically, prices are inching downward after showing a bearish Harami candlestick pattern below Andrew's Pitchfork resistance. Pitchfork midline support stands at $37.37, while a break above pitchfork top ($38.85) targets the underside of rising trend line support-turned-resistance set from early July, now at $41.26.

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