Talking Points

  •  Crude Oil on the Defensive After German GDP Misses Expectations
  •  Gold Prices to Rise if Merkel, Sarkozy Fail to Expand the EFSF Fund

WTI Crude Oil (NY Close): $87.88 // +2.50 // +2.93%

Crude prices continue to track broad-based risk appetite trends, with a pullback seemingly in the cards as S&P 500 stock index futures trade aggressively lower ahead of the opening bell on Wall Street. Sentiment is on the defensive after German GDP figures missed economists' estimates, reminding the markets that the headwinds facing the global recovery remain firmly in place.

Looking ahead, all eyes are on a summit between German Chancellor Angela Merkel and French President Nicolas Sarkozy in Paris. If the sit-down produces an expansion of the EFSF bailout fund, a recovery in risk appetite seems likely to lift the spectrum of sentiment-sensitive assets including the WTI contract, and vice versa. US Housing Starts and Building Permits figures headline the calendar going forward, with losses expected on both fronts. Preliminary API weekly inventory numbers are also on tap.

Sizing up the technical landscape, prices took out resistance at $85.20 - the 38.2% Fibonacci retracement level - to push up squarely against the 50% boundary at $88.14. A move above this juncture exposes the 61.8% Fib at $91.07. The 38.2% level has been recast as near-term support.

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Spot Gold (NY Close): 1765.85 // +18.95 // +1.08%

Gold continues to trade inversely with share prices, so it is no surprise that the metal is pushing higher in European trade as risk appetite fades in the aftermath of Germany's disappointing GDP report. As with crude, the Merkel/Sarkozy summit is now in the spotlight, with an increase in the EFSF likely to weigh on the yellow metal (and, naturally, vice versa).

Prices put in a bearish Dark Cloud Cover candlestick pattern below the $1800 figure and moved lower to test support at $1735.13, the 23.6% Fibonacci retracement level. A break below this juncture exposes the 38.2% level at $1686.00. Near-term resistance stands at $1765.42, with a daily close above that opening the door for another test of the 8/11 high at $1814.55.

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Spot Silver (NY Close): $39.87 // +0.78 // +1.98%

Silver looks to be trading as a risky asset, decoupling from its more expensive precious metal counterpart. The logic behind the arrangement likely has to do with the metal's lower liquidity and generally more pronounced speculative qualities as compared to gold.

It can be surmised that if gold had been rising on inflation fears, silver would follow suit, but in the current environment where the yellow metal is buoyed risk aversion that is not the case. With that in mind, a negative outcome to the Merkel/Sarkozy summit may actually weigh on silver, while an expansion of the EFSF (or at least a pledge to do so) could have an opposite effect.

On the technical front, the outlines for a Head and Shoulders bottom continue to take shape, with confirmation on a break above neckline resistance at $39.82 exposing the underside of rising trend line support-turned-resistance at $41.80. Alternatively, a move lower sees initial support in the $37.23-$38.26 region.

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