Talking Points

  •  Crude Oil Aims Higher as S&P 500 Futures Rise, Merkel/Sarkozy in Focus
  •  Gold Poised to Ride US Dollar Weakness Higher but Conviction is Suspect

WTI Crude Oil (NY Close): $100.96 // +0.76 // +0.76%

S&P 500 stock index futures are pointing firmly higher, hinting crude oil is likely to rise amid a broad-based advance in risk sentiment. The chipper mood may quickly come undone however as German Chancellor Angela Merkel and French President Nicolas Sarkozy meet in Paris in an attempt to forge a united front ahead of the EU leaders' summit set to begin on Thursday.

Traders will be looking for a reading on progress toward a compromise arrangement floated toward the end of last week that envisions establishing the roadmap to deeper integration and a firm commitment to follow it (a German imperative) followed by a larger-scale ECB bond purchase program to relieve immediate upward pressure on borrowing costs (a French objective). Signs that an accord has been reached are likely to boost risk appetite and - by extension - the WTI contact. Needless to say, the reverse is likewise the case. The US ISM Non-manufacturing gauge is on tap later in the session, with expectations calling for the service sector to expand at the fastest pace in six months.

On the technical front, prices are retesting support-turned-resistance at the underside of a rising channel set from October's swing bottom. Overall positioning remains bearish absent a daily close above 103.35, the high of a Bearish Engulfing pattern completed on November 17. Key near-term support remains at 94.56.

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Spot Gold (NY Close): $1746.75 // +1.93 // +0.11%

The pickup in S&P 500 stock index futures bodes well for gold, hinting prices will rise as capital drains out of the safe-haven US Dollar and offers a de-facto boost to the yellow metal by way of its denomination in terms of the benchmark currency. As noted above however, sentiment is at risk of a sharp reversal depending on the outcome of a meeting between Angela Merkel and Nicolas Sarkozy as the Eurozone debt crisis continues to dominate attention, meaning the longevity of current near-term trends is far from assured.

Prices are stalling below resistance at 1746.08, the 14.6% Fibonacci extension, with a Shooting Star candlestick hinting at a possible reversal lower ahead. Near-term support lines up at 1711.13, the 23.6% level, a boundary reinforced by a rising trend line underpinning price action since late September. Alternatively, a break higher exposes the November 8 high at 1802.77.

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Spot Silver (NY Close): $32.59 // -0.16 // -0.48%

As with gold, silver is looking for direction cues from the US Dollar, with the near-term outlook seemingly favoring the upside as the greenback slumps amid a recovery in risk appetite heading into the Merkel/Sarkozy meeting. Prices remain capped by range resistance at 33.04, with support at a rising trend line set from late-September (now at 30.94). A pair of Doji candlesticks point to indecision, diverging with bullish cues found in risk sentiment indicators and hinting at weakness. A break below initial support exposes the 30.00 figure. Alternatively, a push through resistance exposes 35.35.

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