Crude Oil Falls for the Fifth Session, Gold Rally Continues

Crude Oil Falls for the Fifth Session

Commentary: Monday was a day of pause for crude oil and equity markets, as risk assets generally fluctuated between small gains and small losses. Oil would register its fifth loss in as many sessions, but clearly downside momentum is waning now that prices are notably below last week’s highs. Prices are currently near the USD 75.50 level, which is close to the midpoint of crude oil’s 11-month range, with prices below that having turned out to be attractive buying opportunities. U.S. economic data set to be released on Tuesday will include figures on Housing Starts (549K expected), Building Permits (586K expected), and Industrial Production (0.5% expected). Whether crude oil continues lower will be determined largely on the market’s assessment of these and other economic data points. Anything that suggests a double dip recession on the horizon will likely send risk asset prices lower, while better-than-expected data could catalyze a bounce in crude oil and equities alike.

Technical Outlook: Prices are resting at the bottom of a rising channel that has confined prices since late May, now at USD 75.17. A break below this juncture exposes USD 71.09, while a bounce sees initial resistance at the USD 79.38.

Gold Rally Continues

Commentary: Momentum from gold’s gains last week carried over into Monday’s session, as the metal rallied USD 9.65, or 0.79%. Importantly, gold ETF holdings have not budged, indicating that perhaps the latest rally may not be sustainable. It bears repeating that the relationship between gold ETF holdings and gold prices is extremely strong, as regression analysis suggests that nearly 90% of the variance in the gold price over the last six years can be explained by the variance in gold ETF holdings. Nevertheless, gold has continued to rally on the back of double dip recession fears. In the event that such fears persist or deepen, gold ETF holdings may increase rapidly, sending prices even higher.

Technical Outlook: Prices have taken out horizontal resistance at USD 1214.60, with this level now acting as support.On the upside, the door is now open for a challenge of USD 1233.85.

Commentary: Silver increased USD 0.25, or 1.38% on Monday. The advance was clearly tied to the rally in gold, and left the gold/silver ratio only slightly lower at 66.45. The ratio remains well within the 2010 range between 60 and 71.

Technical Outlook: Prices have extended a recovery above the USD 18 figure to re-test the upper boundary of a descending triangle chart formation that has confined spot since mid-May (now at USD 18.53). A breakout higher would initially expose USD 18.70, while a move back below USD 18.00 clears the way for a downside test of USD 17.79.