Talking Points

  •  Crude Oil Gains from Iran Saber-Rattling Unlikely to Prove Lasting for Now
  •  Gold Outlook Broadly Bearish on Waning Investment Demand, Profit-Taking

WTI Crude Oil (NY Close): $101.34 // +1.66 // +1.67%

Crude prices pushed higher yesterday after Iranian Vice President Mohammad-Reza Rahimi warned that international plans for crippling economic sanctions would be met with a total blockade of oil shipments through the Strait of Hormuz, the route carrying close to 40 percent of global seaborne supply. The threat is a familiar one however and its ability to continue driving prices over the near term appears limited until substantial escalation is apparent. In the meantime, larger sentiment trends are likely to hold sway, pointing the spotlight on the re-emergence of Eurozone debt crisis fears ahead of an Italian bond auction. The preliminary API set of weekly inventory figures is likewise on tap.

On the technical front, prices took out the top of a falling channel set from mid-November to challenge resistance at 101.80, the closing high for the second half of 2011. Continued gains from here target the November 17 session high at 103.35. The channel top, now at 99.72, has been recast as near-term support.

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Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1593.22 // -13.72 // -0.85%

Declining investment demand - evident in sliding gold ETF holdings - continues to keep gold under pressure in the aftermath of December's FOMC meeting where Ben Bernanke and company conspicuously shied away from QE3, weighing on the metal's appeal as an inflation hedge. Seasonal profit-taking is likely a factor as well as gold approaches the conclusion of the third consecutive year of double-digit gains. The trajectory of the US Dollar against the backdrop of returning European debt crisis fears may amplify downward pressure if safe-haven demand pushes the greenback higher. Needless to say, a risk-on scenario is likely to offset bearish momentum at least over the near term.

Turning to the chart setup, prices are drifting lower after putting in a bearish Shooting Star candlestick below support-turned-resistance at the bottom of a falling channel set from early November. The bears aim to challenge long-term support at a trend line dating back to late October 2008, now at 1567.29. Channel resistance is now at 1611.84.

Oil_Gains_on_Iran_Threat_May_Not_Hold_Gold_Outlook_Favors_Losses_body_Picture_4.png,
Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $28.69 // -0.42 // -1.45%

Little has changed from what we observed last week, with prices locked in a narrow range between 28.41 and 29.79. The fundamental catalysts driving price action largely mirror those of gold: eroding demand for an inflation hedge presents a headwind likely to develop over the coming months but year-end flows and even thinner-than-usual liquidity complicate trend development. Near-term, the return of Eurozone sovereign risk fears and their implications for the US Dollar also merit attention. A break higher exposes rising trend line support-turned-resistance at 32.07 while a push to the downside targets 26.05.

Oil_Gains_on_Iran_Threat_May_Not_Hold_Gold_Outlook_Favors_Losses_body_Picture_5.png,
Daily Chart - Created Using FXCM Marketscope 2.0