Crude Oil Barely Moves Ahead of Inventory Data, Gold Shrugs off Dollar Rally and Advances

Commodities - Energy

Crude Oil Barely Moves Ahead of Inventory Data

Crude Oil (WTI) - $ 82 . 14 // $0. 41 // 0. 50 %

Commentary: Talk about a boring day in financial markets on Tuesday. Crude oil had a daily range of 74 cents, or less than 1%, while the S&P 500 stock index fluctuated about 10 points from high to low, also less than 1%. Fitting for such a day, crude settled $0.03, or 0.04%, higher, to end at $82.55. Both crude and stocks are trading near the highest levels of this year, so it is little surprise that we aren't seeing huge moves to the upside from here. Instead, prices are very gradually creeping higher, climbing the proverbial wall of worry. We would only expect volatility to reintroduce itself were there some catalyst to push prices meaningfully lower. Right now there is no such catalyst for the global economic landscape is rosy and the Fed's promise of further easing still lies around the corner.

Tomorrow brings the Department of Energy's weekly report on U.S. petroleum inventories. If the less-authoritative API survey (an industry source) is anywhere close to accurate, perhaps crude markets will get that jolt of volatility traders are hoping for. The API numbers indicate that last week crude oil inventories increased by a whopping 6.4 million barrels, while gasoline inventories fell by 1.8 million barrels, and distillate inventories increased by 0.8 million barrels. These figures are much more bearish than the 5-year average which is for a crude build of 0.4 million barrels, a small gasoline draw, and a distillate draw of 0.4 million barrels.

Regardless of tomorrow's numbers, crude oil inventories remain extremely high currently. That is going to keep a lid of oil prices and prevent the commodity from spiraling higher from here. And while the global demand picture looks robust, we need to see evidence of that demand eating into this excess supply before crude prices break above $90.

Technical Outlook: P rices continue to linger near the top of a downward-sloping channel set from the swing high set earlier this month. A turn lower from here will see the bears targeting $79.21, the 38.2% Fibonacci retracement of the 8/25-10/7 advance. Near-term resistance stands at the channel top, now at $82.97.

Commodities - Metals

Gold Shrugs off Dollar Rally and Advances

Gold - $1335.90 // $4.55 // 0.34%

Commentary: Gold managed to close in the green on Tuesday, moving contrary to the strong inverse correlation the metal has had with the U.S. Dollar recently. Though down for most of the day, gold managed to eke out a $0.60, or 0.04%, gain. This performance was especially impressive considering the strong upward move the dollar put in. As measured by the trade-weighted Dollar Index, the greenback rose 0.78%.

Much of the strength in gold may be attributed to the enormous reversal we saw in silver prices. Typically we see gold as the primary driver of the precious metals complex, but when silver rallies from a 2.09% loss to go green and end up with a 1% gain, that is definitely going to have a spillover impact.

Now the question becomes, if the U.S. Dollar continues to rally, can gold rally as well? Has the gold-dollar correlation broken down? We don't see that as a likely scenario. By any measure, gold prices are extremely overbought and ripe for some profit taking. Gold ETF holdings have topped and are trending lower. There is little reason to believe that traders will bid gold prices higher in such an environment. Indeed, we have speculated that gold could potentially fall even if the dollar remained at recent lows or fell even further. Now that it is rising, the impetus for a gold correction is that much greater.

Technical Outlook: Prices are testing the top of a falling channel set from this month's swing high (now at $1339.81), with a break higher exposing horizontal resistance at $1361.25. A turn lower sees support at $1332.99, the 23.6% Fibonacci retracement of the 7/28-10/14 advance, followed by a rising trend line now at $1317.89.

Silver - $23.903 // $0.02 // 0.07%

Commentary: We referenced silver's incredible move on Tuesday in the gold section above. Prices rebounded from a low of $23.16 to as high as $23.95, before settling at $23.88, up $0.23, or 0.96%, on the day. Silver's parabolic rally over the last several weeks has attracted a lot of attention. Momentum traders and trend followers are eyeing the metal intently. It's plausible that some of those that missed the run up in prices saw this latest dip as an opportunity to buy. Is it sustainable? Like we said in the gold section, if the dollar continues to rally, we don't see much upside for the precious metals complex from here.

The gold/silver ratio plunged to 55.7, a new low for the year and the lowest level since August 2008. (The gold/silver ratio measures the relative performance of gold and silver. A higher number indicates gold outperformance, while a lower number indicates silver outperformance).

Technical Outlook: Prices have broken above the top of a falling channel set from October's swing high to stall at resistance marked by the 50% Fibonacci retracement of the 10/14-10/22 decline at $23.87. A break above this level exposes the 61.8% Fib at $24.12. Near-term support lines up at $23.63, the 23.6% retracement level.

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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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