Crude Oil Back in Price Discovery Mode, Gold Shrugs off Dollar Rally to Rise

Commodities - Energy

Crude Oil Back in Price Discovery Mode

Crude Oil (WTI) - $ 85 . 27 // $0. 46 // 0. 54 %

Commentary: Crude oil continued to rally on Monday, buoyed by momentum established last week. The commodity rose $1.97, or 2.35%, to settle at $85.73 after reports of a strong start to the United States holiday shopping season. The latest move was extremely telling, for it took place on a day in which U.S. equity markets fell amid persistent concerns related to the European sovereign debt crisis. Indeed, Spanish 10-year bond yields hit their highest levels in eight years near 5.43%, as contagion fears mounted. And while U.S. equity markets would stage an impressive reversal- they recovered the vast majority of the 1.3% losses put in during the early part of the session- oil was solidly higher all throughout the day.

Oil is rebounding after successfully testing $80 support last week on four separate occasions. Prices are back in price discovery mode, and will likely soon surpass the 25-month highs set just under $89 earlier this month. As we have written previously, the European debt crisis has been an excuse for traders to lock in significant gains, but now the consolidation phase seems to be ending and more influential factors such as sizzling demand in emerging markets and the accelerating U.S. recovery are taking precedence-- as they should. Europe is an insignificant component of the global oil market and the risk of spillover impact from the sovereign debt crisis into key oil market players such as Asia and to a lesser extent, the U.S., is almost nonexistent in our view.

Technical Outlook: Prices have taken out resistance in the $83.27-$84.43 congestion region, with the bulls now positioning for a retest of support-turned-resistance at a rising trend line set from late September, now at $87.41. A break above that exposes the 11/11 swing high at $88.63. The aforementioned congestion area has been recast as near-term support.

Commodities - Metals

Gold Shrugs off Dollar Rally to Rise

Gold - $1364.80 // $1.52 // 0.11%

Commentary: Gold once again shrugged off a sharp rally in the U.S. Dollar to finish to the upside on Monday. The metal added $2.57, or 0.19%, to settle at $1366.32. Meanwhile, the dollar index rose 0.6%. The breakdown in gold's correlation with the U.S. Dollar that we pointed to in last week's Gold - FOREX correlations report seems to be continuing in the new week, as traders seek shelter from the debauchment of fiat, or "paper," currencies in general.

Not many market participants believe that this advance in the U.S. Dollar is anything but a blip in a larger downtrend. And regardless, a rally versus a deeply troubled Euro currency is not necessarily an indication of monetary soundness. Versus the Australian Dollar, for instance, the dollar only rose 0.15% on Monday, well short of the 0.88% increase against the Euro. Gold traders and investors continue to treat gold as an alternative currency, or more precisely, an alternative store of value.

Until we see indication that monetary conditions will tighten in the U.S. and Eurozone, gold will likely stay well bid.

Technical Outlook: Unchanged from yesterday: "Prices have turned lower following a test of horizontal resistance at $1381.15, hinting gold may be forming the right shoulder in a Head and Shoulders top formation with a neckline at $1322.39, the 38.2% Fibonacci retracement for the 7/28-11/9 advance. A validation of this setup on a break through the neckline will see the bears aim for a measured target at $1220.46. Alternatively, a push higher through near-term resistance exposes the record high at $1424.60."

Silver - $27.08 // $0.08 // 0.28%

Commentary: Silver rose $0.44, or 1.66%, to settle at $27.15, rebounding about half of Friday's losses. We maintain our view that the tail is wagging the dog and silver is driving movements in the precious metals complex. As long as investment capital continues to flow briskly into silver via Exchange Traded Funds and the like, expect silver outperformance to continue.

The gold/silver ratio was steady at 50.4, up from recent lows near 49. (The gold/silver ratio measures the relative performance of the two precious metals. A higher ratio indicates gold outperformance, while a lower ratio indicates silver outperformance).

Technical Outlook: Unchanged from yesterday: "A bearish 'outside day' hints the bulls have lost initial momentum following a test of resistance at $27.82, the 23.6% Fibonacci retracement of the 10/22-11/09 upswing. From here, sellers target support at $26.87, the intersection of a rising trend line set from late August and the 38.2% retracement level. A break through this boundary exposes the 61.8% Fib at $25.33, while a reversal opens the door for another run at the 23.6% boundary."

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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