Talking Points

  •  Crude Oil at Risk as US Consumer Confidence Report Looms Ahead
  •  Gold May Rise on Safety Demand But Long-Term View Worrisome

WTI Crude Oil (NY Close): $87.27 // +1.90 // +2.23%

Crude prices continue to track broad-based trends in risk appetite, with deepening losses on S&P 500 stock index futures ahead of the opening bell on Wall Street pointing to weakness in the coming session. Sentiment is turning increasingly defensive ahead of the upcoming US Consumer Confidence figure, which is expected to print at the lowest in 13 months.

The Federal Reserve will also publish minutes from its August FOMC meeting, though the market-moving potential there seems limited with much of the market's outlook for US monetary policy thoroughly priced in given the focus on Ben Bernanke's Jackson Hole Symposium speech so far this week. The weekly set of API crude inventory figures will cross the wires as well.

Prices are once again testing resistance at $88.15, the 50% Fibonacci retracement of the drop from the late-July swing high. A break higher exposes the 61.8% level at $91.10. Near-term support continues to stand at $85.19, the 38.2% level. Broadly speaking, the $80-88 consolidation range in place since the beginning of the month continues to define positioning.

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Spot Gold (NY Close): 1788.43 // -39.52 // -2.16%

Gold continues to show a significant inverse correlation with the S&P 500, hinting prices may rebound as risk aversion grips the market. With that in mind, the strength of the relationship is on the wane, and a compelling argument for a larger decline in the yellow metal seems to be emerging in the aftermath of Ben Bernanke's speech at Jackson Hole on Friday.

Gold's appeal as an investment is found in its role as an alternative store of value, either in the event that the global recovery is rapid and breeds runaway inflation - a highly unlikely scenario by any measure at this point - or if growth falters altogether and renewed recession sinks financial markets en masse. Chairman Bernanke's speech seemed to point to a middle ground, whereby growth continues but at a diminished pace. This seems likely to divert safe-haven flows away from gold to those assets that carry some level of yield, like Treasuries, whereas gold pays none. It remains to be seen whether such an outcome will indeed materialize however, and risk trends seem likely to remain in the drivers' seat over the near term.

Prices put in a bearish Dark Cloud Cover candlestick pattern following a test of support-turned-resistance at an Andrew's Pitchfork bottom, in the process undoing yesterday's break above resistance at the 23.6% Fibonacci retracement level (1809.48). Negative RSI divergence reinforces the case for a downside scenario. Initial support lines up at 1746.19, the 38.2% Fib.

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Spot Silver (NY Close): $40.87 // -0.49 // -1.17%

The near-term fundamental drivers of silver price action are turning somewhat convoluted again. However, if our theory on the loss of store-of-value demand for gold in the weeks ahead proves accurate, then silver seems likely to follow along a broadly parallel trajectory.

Prices moved lower after producing a bearish Hanging Man candlestick at resistance marked by the intersection of the Andrew's pitchfork midline and the 38.2% Fibonacci retracement level ($41.45). The bears are now testing support at $40.60 - the 50% Fib level - with a break below that exposing the 61.8% juncture at $39.75.

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