Gold flat but dollar drop, Bernanke view underpin

Gold was little changed on Wednesday as the market was underpinned by a dollar drop and Federal Reserve Chairman Ben Bernanke's comment that he had no plans to scrap a massive bond-buying program, indicating interest rates will not rise any time soon.

In testimony to Congress, Bernanke suggested U.S. economic conditions were still too weak for the central bank to pull back on its vast monetary stimulus, despite a welcome drop in the jobless rate.

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.

Gold Consolidation May Persist But Risks Are to the Upside

Gold prices haven't mirrored the breakouts seen across other benchmark financial assets, with traders seemingly unsure which of the yellow metal’s properties – its allure as a store of value, that would attach it to safe-haven assets, or its perceived attraction as an inflation hedge, that would link it to risk appetite – are going to dominate price action in the near term.

The risk aversion has staged a comeback, with stocks reversingsharply lower having tested May’s swing top to post the worst weekly performance in over three months. This seems reasonable considering most of the engines of the global economic recovery are meaningfully faltering. Indeed, European growth is likely to remain lackluster as the region tries to trim its sovereign debt burden, Japan remains in deflation, China is willfully pulling on the brakes amid fears of overheating, and the US has notably lost pace.With that being said, risky assets seem to be scope for a corrective rebound in the near term given the pace of last week’s selloff as well as expectations of some encouraging results on second-tier US economic indicators. Producer Prices are set to rise for the first time in four months, Industrial Production is expected to pick up momentum, and Housing Starts are set to snap a two-month losing streak in July. Traders have long looked to the health of the world’s largest consumer market as a proxy for the global recovery at large, and while these results are unlikely to prove sufficient to stop risk aversion in its tracks, they could certainly engineer an upward retracement across global stock exchanges.

Crude Oil May Consolidate

Crude Oil (WTI) $81.05 // +$0.35 // +0.43%

 

Commentary: Last week saw crude oil advance over the $80 level for the first time since May. Traders took profits on Friday, however, after U.S. nonfarm payroll data came out weaker than expected. This week is looking rather light on the U.S. economic front. The FOMC will make its rate decision on Tuesday, but no significant actions are expected from the central bank. Initial jobless claims on Thursday always bear watching, and retail sales on Friday are notable as well. Traders will be looking to the DOE inventory report on Wednesday to see if U.S. inventories, which are already at 10-year highs, continue to swiftly move higher. With oil prices closer to the top of an 11-month range than the bottom, there is ample opportunity for prices to slip this week. We are expecting a period of consolidation at the very least. 

 

Technical Outlook: Prices have turned lower from resistance at $82.55, the 138.2% Fibonacci extension of the 6/28-7/6 downswing. Initial support lines up at $79.38, a barrier reinforced by the close proximity of the bottom of a rising channel set from the low in May.