Commodities - Energy
Crude Oil Falls as China Slows
Crude Oil (WTI) - $81.12 // $0.56 // 0.70%
Commentary: Crude oil shed $1.21, or 1.48%, on Thursday giving back half of the prior day's gains. Oil seems to be gradually seesawing lower as it consolidates after a sharp rally earlier this month.
There was little to drive risk sentiment on Thursday-initial jobless claims was the only U.S. economic release of consequence-and that came out as expected and close to the same levels as last week, thus traders were left to speculate about next months' Fed action, as well as the fundamental landscape of the oil market.
Last night's figures on the Chinese economy also offered little guidance as they basically came out as expected. Real GDP for the third quarter was up 9.6% year-over-year, close to the 9.5% that was expected, but down from the 10.3% in the second quarter. Many market watchers have been calling for a slowdown in China, perhaps to even the 8-9% range next year, so now that we are seeing it, it isn't that surprising. Such rates of growth are still extremely high and will lead to impressive increases in crude oil consumption.
That being said, demand growth out of developed economies such as the U.S. remains anemic, thus it will take a while to absorb the global inventory surplus , as well as the high levels of spare capacity within OPEC.
Since there doesn't seem to be a catalyst to send crude oil meaningfully higher than the top of its 12-month range in the low-$80's, we are still looking for prices to come off a bit as traders take profits. A move into the low to mid-$70's would be seen as a buying opportunity.
Technical Outlook: P rices are drifting lower in a downward-sloping channel following a test above the $84.00 figure, with the bears now eyeing support at $79.21, the 38.2% Fibonacci retracement of the 8/25-10/7 advance. Near-term resistance lines up at the channel top, now at $83.08.
Commodities - Metals
Gold Approaches 1-Month Lows as Traders Bail
Gold - $ 1328 . 25 // $ 2 . 57 // 0. 19 %
Commentary: Gold fell $20.57, or 1.53%, to reach the lowest level since October 4 th on Thursday. The U.S. Dollar rose $0.25, or 0.32%, so we see that gold held true to its recent inverse correlation versus the greenback (Take a look at our most recent Gold - FOREX correlations report for more insight into the recent relationship between gold and currencies). But as we have been stating in recent days, gold may sell off regardless of what the dollar does. As a matter of fact, gold sold off much more than it rose on Wednesday, but the dollar only regained a quarter of its losses from Wednesday, indicating that gold downside momentum is picking up.
By any measure gold is in some type of correction at the moment. Prices have fallen 5% since peaking on October 14 th . While prices may attempt to bounce from here, short-term traders will use rallies as selling opportunities. We would now be looking to technical indicators to gauge potential support levels and downside targets for this correction.
Technical Outlook: Prices have taken out support at $1332.99, the 23.6% Fibonacci retracement of the 7/28-10/14 advance, with continued selling targeting a rising trend line set from late July (now at $1312.44). A break below that exposes the 38.2% Fib at $1295.63. The 23.6% level has been recast as near-term resistance.
Silver - $ 23 . 37 // $0. 18 // 0. 75 %
Commentary: Silver got hit hard on Thursday as one would expect considering the gold move. The metal lost $0.76, or 3.16%, to settle at $23.19. After a parabolic move that has taken silver from under $18 to nearly $25, there is a lot of room to potentially retrace. We would be extremely cautious of this metal and like gold, would look to technical indicators to gauge potential support levels and downside targets.
The gold/silver ratio stands at 56.8, still holding near recent lows and near the levels of August, 2008. (The ratio measures the relative performance of gold and silver. A higher ratio indicates gold outperformance, while a lower ratio indicates silver outperformance).
Technical Outlook: Prices have dropped through horizontal support at $23.43 having tested the top of a falling channel established from October's swing high. The bears are now testing the $23.00 figure, a barrier marked by the intersection of the channel bottom and a rising trend line established from late August. A push below this would clear the way for a decline to $22.33. The $23.43 level has been recast as resistance, with a push back above that once again exposing the channel top at $23.89.
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