Talking Points

  •  Crude Oil Set to Follow S&P 500 Lower as EU Debt Woes Hit Italy
  •  Gold Outlook Rests on US Dollar Performance, Tone of Fed-Speak

WTI Crude Oil (NY Close): $94.26 // +0.19 // +0.20%

S&P 500 stock index futures are pointing aggressively lower, down over 1 percent ahead of the opening bell on Wall Street, to suggest crude oil prices will find themselves under pressure amid market-wide risk aversion. The collapse of confidence comes amid reports that Italy's Prime Minister Silvio Berlusconi may lose his governing majority ahead of a budget vote tomorrow.

The spread of Greek-like turmoil to Italy - a very real possibility if a meltdown of the government holds up spending cuts envisioned in the budget and continues to buoy borrowing costs - can prove catastrophic considering the Euro Zone's third-largest economy is almost certainly too large to be bailed out with the mechanisms in place at the moment. Sellers were encouraged by comments from ECB policymaker Yves Mersch over the weekend threatening to end the central bank's support for Italian bonds if the country fails to adopt promised reforms.

On the technical front, prices continue to consolidate between $90.17 and $94.87, the 38.2% and 50% Fibonacci retracements, respectively. Early signs of negative RSI divergence hint a reversal lower may be ahead, with a break below $90.17 exposing the $87.00 figure. Alternatively, a break higher through $94.87 targets the 61.8% level at 99.57.

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Spot Gold (NY Close): $1754.65 // -9.18 // -0.52%

Gold continues to find itself torn between competing forces as investors ponder the implications of spreading sovereign stress into Italy. On one hand, the potential collapse of a large Euro Zone member state is certainly everyone's worst-case scenario for the debt crisis' endgame, with gold finding support as a hedge against an outright collapse across financial markets akin to the one triggered by the implosion of Lehman Brothers in 2008 (albeit arguably on a larger scale). On the other, safe-haven buying of the US Dollar acts as a cap on gold's gains considering the metal is denominated in terms of the greenback.

For now, the former catalyst seems to be holding sway, with gold inching higher ahead of the opening bell n North America. This seems likely to continue after last week's disappointing ISM and employment figures coupled with a (predictably) dovish Federal Reserve rekindled hopes for QE3, adding an inflation-hedge component to gold demand. The continuity of this dynamic will depend on the tone of commentary from central bank officials throughout the week, with traders getting a small taste of what's to come as Boston Fed President Eric Rosengren takes to the wires today.

Taking stock of the chart setup, broke above support-turned-resistance at $1745.15 to challenge resistance at the top of a rising channel set from September's low, now at $1775.59. A break above this boundary exposes the $1800 figure, while $1745.15 has been recast as near-term support.

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Spot Silver (NY Close): $34.16 // -0.39 // -1.13%

Like gold, the outlook for silver hinges on the precarious balance between alternative store of value demand and the direction of the US Dollar amid compounding turmoil in the Euro Zone. With that said, the generally more speculative nature of the cheaper will probably make it less attractive as a safe haven against sovereign stress alone unless the likelihood of appears to grow QE3 in the days ahead.

Prices continue to consolidate above the $33.00 figure, which closely coincides with the 38.2% Fibonacci retracement and 14.6% extension levels. A break lower targets the 23.6% extension at $31.39. Alternatively, a push through resistance exposes $37.25.

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