Fundamentals, Oil & Gold

Oil, Metals Under Pressure as Dollar Gains on Fed Outlook

Commodities – Energy

Oil Drops Below $70 as US Dollar Gains Momentum

Crude Oil (WTI)       $69.19       -$0.68       -0.97%
Oil prices have slipped below the psychologically significant $70 level and are now testing $68.86, with a sustained push lower opening the door for a decline to $65.65. The economic calendar is empty, leaving prices with no definitive fundamental catalysts other than the direction of the US Dollar. Indeed, crude is now 83.3% correlated with EURUSD.

Commodities – Metals

Metals Decline as Retail Sales Boosts US Rates Outlook

Gold       $1121.43       +$6.03       +0.54%
Prices are working their way lower, grinding through support in the $1111.20-1123.38 region, with a push below that clearing the way for a test of $1100. The spread between March 2010 and December 2010 90-day fed funds futures has retained a strong inverse correlation with gold prices, hinting that the outlook for US interest rates next year remains the key catalyst from the fundamental side of things. On balance, this seems supportive of the bearish scenario, with no significant event risk on tap to threaten momentum from last Friday’s encouraging US retail sales report.

Silver       $17.23        +$0.07       +0.38%
Silver is testing support at $17.02, but positive RSI divergence hints that an upswing may be ahead before the bears can regain momentum. Initial resistance is seen at 17.76, while a break lower will open the door for a decline to $16.74. Fundamentally, the landscape is much the same as that of gold, with the US rates outlook being of primary importance.