Talking Points

  •  Crude Oil Sinking as Risk Aversion Grips Financial Markets
  •  Gold Finds Support Amid Global Economic Slowdown Fears

WTI Crude Oil (NY Close): $94.89 // -0.81 // -0.85%

Crude oil is poised to extend losses as S&P 500 stock index futures trade deeply in the red ahead of the opening bell on Wall Street, pointing to continued broad-based risk aversion. The dour mood seems reasonable: with the deal to raise the US debt ceiling effectively secure, the political theater that had preoccupied the markets over recent weeks has given way to renewed fears of a broad-based global slowdown in the second half of the year.

Needless to say, jitters were reinforced by the disappointing US ISM reading yesterday, and are likely to get another push today as Euro Zone debt fears re-intensify. US Personal Income and Spending figures headline the economic calendar. Weekly API inventory figures are also on tap.

Prices broke through the bottom of a bearish Rising Wedge chart formation carved out since late July as well as the 38.2% Fibonacci retracement at $96.39. The bears are now probing below the 50% barrier at $95.09 to challenge the 61.8% Fib at $93.79. The last layer of defense ahead of the June 27 low ($89.59) stands at $92.19.

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Spot Gold (NY Close): 1619.00 // -8.88 // -0.55%

Gold is reclaiming its safe-haven role ahead of the North American trading open, with prices edging higher as risk aversion grips financial markets. We have long argued that gold demand is rooted a desire for an alternative store of value under two possible scenarios: a very robust recovery that sets off runaway inflation, or a post-stimulus slump that plunges the world into a double-dip recession and sinks the spectrum of risky assets anew. The possibility of the latter outcome is now preoccupying investors, and while its likelihood is far from assured, swelling fears are poised to keep the yellow metal well-supported for now.

Prices remain wedged between the upper boundary of a rising channel established from mid-July (now at $1635.89) and horizontal resistance-turned-support at $1607.30. Support is closely reinforced by the channel bottom, now squarely at the $1600 figure, with a break below that exposing 1582.65. On balance, negative RSI divergence lends its support to a downside scenario, but supportive fundamentals argue against acting on the bearish implications of technical positioning for the time being.

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Spot Silver (NY Close): $39.30 // -0.59 // -1.48%

Directionless trade continues, with prices wedged between the 50% and 38.2% Fibonacci retracement levels at$41.06 and $39.01, respectively. As with gold, negative RSI divergence argues for a bearish bias but safe-haven demand seems likely to prove supportive in the near term, arguing for patience in acting on the technical setup.

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