Fundamentals, Oil & Gold

Oil and Metals Consolidate, Brace for Volatility Ahead

Commodities – Energy

Crude Faces Volatility on FOMC, Earnings, Fading Stimulus

Crude Oil (WTI)       $74.67        -$0.04       -0.05%
Oil prices continue to consolidate above support at $74.41. A bounce will see initial resistance at the top of a falling channel established from January’s swing high (now at $75.48), while a push lower will target $72.66. US New Home Sales are expected to yield a modest gain in December after sliding in the previous month, which is generally good news for prices considering the American construction sector is the world’s leading largest crude consumer. However, this may be overshadowed as traders await the outcome of the Federal Reserve’s monthly policy meeting as well as US President Obama’s State of the Union speech. The President is expected to announce a 3-year discretionary spending freeze, which along with China’s clampdown on lending may weigh heavily on prices amid fears of evaporating stimulus (and thereby shrinking demand) in the world’s largest oil-consuming nations. A hefty dollop of earnings releases adds to the prospect for volatility, with big names like ConocoPhillips and Valero set to report fourth quarter results all the while the correlation between crude and the S&P 500 rises to 0.81 from 0.77 yesterday, hinting risk sentiment is increasingly a factor in driving directional momentum.

Commodities – Metals

Gold and Silver Consolidate, Bracing for Sharp Volatility Ahead

Gold       $1094.93       -$2.63       -0.24%
Prices continue to trade sideways above support at $1090.00, with near-term resistance seen at $1118.00. The near-term correlation between gold and the MSCI World Stock index remains 0.92, meaning the trajectory of risk appetite remains the primary fundamental driver for price action. This means the back-to-back impact of a string of US fourth quarter earnings releases, the FOMC announcement, and the US State of the Union speech all promise heavy volatility.

Silver       $16.66       -$0.08       -0.49%
As with gold, technical positioning is little changed from yesterday as prices continue to consolidate above the $17.00 figure. Silver’s correlation with the MSCI World Stock Index strengthened a bit to 0.93, meaning the risk-sensitive metal could be in for a wild ride amid tomorrow’s barrage of market-moving developments.