Fundamentals, Oil & Gold

Commodities Daily Fundamentals: Crude Breaks Beyond Resistance, Will It Continue?

Commodities – Energy

Crude Breaks Beyond Resistance, Will It Continue?

Crude Oil (WTI)   $71.380                               +$1.370                                +1.96%
Crude prices broke through resistance levels in the US session, ending off near its November 2008 level as supply data declines. Fundamentally speaking, the rise in crude has little to support it going forward. Even with the surprise decline today, stockpiles remain very high and demand conditions are not likely to improve sharply in the medium-term. As such fundamentals remain stacked against such high prices but have had little influence on crude trading for most of the quarter. Given market dislocation from such pressures, this could continue for the short-term and perhaps begin to move toward $81. On the other hand, price gains of the quarter were fueled by equity rallies and outsized market optimism. Now that these factors show signs of retreat, fundamental pressure from mounting stockpiles and weak global demand should begin to be affect pricing. While this should pull back prices somewhat these pressures will remain slightly muted as crude prices will hold support due to expected dollar weakness. In turn, barring any major developments the pushing and pulling of these pressures will likely constrain crude prices to range between major psychological resistance levels for the medium term.

Commodities – Metals

Safe-haven Metals Close Off Flat, Likely To Begin To Rebound

Gold                   $954.900                           +$0.2000                              +0.02%
Gold prices were flat for the day as the US dollar continued modest declines. Dollar weakness and inflation expectations will likely continue to stand in favor of gold strength for some time. Recent dollar rebounds will may not be able to regain momentum as government deficits stand at record levels. Unwinding such a large level of debt will be very difficult, especially in the condition of a recession. As a result the dollar will likely remain weak and govem its competing status as a safe-haven vehicle, investors looking for such protection will move to gold as a substitute. Meanwhile, inflationary risks, athough presently muted, will also provide support for prices as some investors are positioning for the longer-term. As a result, Gold prices can be expected to maintain steady strength for the medium-term.

Silver                 $15.1800                         +$0.0400                              +0.26%
Silver prices bounced as some minor signs of improvement were shown. Nevertheless, if equity weakness is any indication the market may be expecting a return to conditions of weakness. If the economy shows sign of further contraction, silver prices will let off some of their gains and only show modest gains if gold rises. On the other hand, if expectations turn such that the economy will recover, silver has the potential to gain at a much faster pace than gold due to the combined effects of its safe-haven status and industrial applications. Expect modest gains for the near to medium-term.

-Written by Stefan Tifigiu, CFDTrading Research
Questions/Comments about this article? Send them to Stifigiu@fxcm.com