Fundamentals, Oil & Gold

Daily Commodities Fundamentals: Commodities Steadily Higher Following Last Week’s Retreat

North American Commodity Update, Last Updated 9/28/2009 5:18PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Recovers for Second Day, Bearish Sentiment Remains High

Crude Oil (WTI)   $67.17                               +$1.15        +1.74%
Oil began the week with a higher close following a volatile session with a range of more than two dollars. Ultimately, direction established as the US markets opened higher, leading to buying that sent the commodity to close not far from its intra-day high of $67.54. Despite the gain, oil remains suppressed below $68 per barrel, with traders expecting a US Department of Energy report to show weekly inventories rising in the past week. Of particular note, dollar strength in today’s session had little effect on price swings in the commodity as larger macro forces took center stage. Fundamentally, little has changed, while a rally in equities on M&A activity and strong expectations in the third quarter led to just a small rise in crude. Tension with Iran remains high following recent missile tests over the weekend as the nation shows off its potential muscle should armed conflict take place. Geopolitics aside, inventories remain high relative to the previous year and production capacity is far from its limits. Consequently, oil has little fundamental bearing for further price growth aside from potential nominal gains should weakness in the greenback return to the marketplace.

Commodities – Metals

Metals Advance Slightly on Equity Rally

Gold                   $992.10                           +$0.50                              +0.05%
Following last week’s close below $1000 per ounce, a key psychological level, the metal saw significant volatility today but failed to cross into the four-digit mark. Trading range on the day was more than $11, with the price swinging between gains and losses on at least eight occasions. German CPI data today posted worse than expected, signaling that inflation fear is far from the minds of investors. Potential bottoming in the greenback and concern over the pace and steadiness of economic recovery has traders unsure where to price the safe-haven asset. Ultimately, the short-term trend may signal that another top has formed, while support may be found as early as $980. With the metal having declined for the first time in six weeks, caution is high going into October.

Silver                 $16.195                   +$0.135                              +0.84%
Silver prices on the day closed higher following a rocky trading session that sent the commodity to its lowest level since early September. Ultimately, the move higher came amid a considerable rally across equity markets in the US and Europe, while the US dollar saw slight appreciation on the day. While the trading session proved to be the first advance for the commodity in four days, caution on the part of traders should remain high as the metal has a large range in the past two months of more than $4 per ounce. The rapidity with which silver has come off its recent high has taken the metal far from overbought levels, however oversupply and a weak auto sector may limit potential price growth in the months ahead.

-Written by Roman Kadinsky, CFDTrading Research
Questions/Comments about this article? Send them to Rkadinsky@fxcm.com