Markets

Crude Oil, Gold May Recover on US Recovery Hopes

Crude oil and gold may rise on improving risk appetite and swelling inflation expectations amid optimism about the resilience of the US economic recovery.

Talking Points

  • Crude Oil and Copper Sold on Chinese Data but Losses Likely to be Fleeting
  • Gold, Silver Have Scope to Recover as Inflation Expectations Swell Again

Crude oil and copper are trading lower in the wake of a disappointing set of Chinese economic data released over the weekend. Beijing reported that the year-on-year CPI inflation rate unexpectedly accelerated to 3.2 percent in February, the highest in 10 months. Meanwhile, Industrial Production posted its weakest increase since October 2009 while Retail Sales advanced the least since January 2005 over the same period.

Taken together, that points to weakening growth dynamics coupled with the reduced likelihood of a monetary stimulus effort to offset them, which understandably bodes ill for oil and copper considering China is a critical demand hub for the two commodities. Indeed, the Asian giant is the world's premier buyer of copper and second-largest buyer of oil.

S&P 500 index futures are pointing lower ahead of the opening bell on Wall Street, hinting the dour mood may carry forward. Although some corrective price action seems reasonable after the benchmark US stock index touched the highest levels since 2007 last week, the overall environment seems to continue to favor risk-geared assets amid signs the US economy may be able to tough out a decent year despite mounting fiscal drag while the Fed continues to offer ample stimulus. That bodes well for gold and silver as well as inflation expectations swell anew, hinting current weakness across the commodities space may prove short-lived.

WTI Crude Oil (NY Close): $91. 95 // + 0 . 39 // + 0 . 43 %

Prices continue to recover after putting in a bullish Piercing Line candlestick pattern, taking out initial resistance at 91.43 marked by the 23.6% Fibonacci retracement. Buyers now aim to challenge the 38.2% Fib at 92.73. The 91.43 level has been recast as near-term support, with a reversal back below that eyeing the March 4 low at 89.34.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1578. 80 // - 0 . 17 // -0. 0 1%

Prices continue to consolidate above support at 1570.37, the 38.2% Fibonacci expansion. Near-term resistance is at 1589.36, the 23.6% level, with a break above that aiming for the February 26 high at 1620.09. Alternatively, a break downward initially aims for the 61.8% Fib at 1554.62.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $28.99 // +0.08 // +0.26%

Prices continue to consolidate above support at 28.46, the 23.6% Fibonacci expansion. Near-term resistance is in the 29.42-92 area, with a break higher exposing a falling trend line now at 30.76. Alternatively, a reversal below support targets the 38.2% level at 27.86.

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close) : $3.510 // -0.010 // -0.28%

Prices are testing below support at 3.495, the 38.2% Fibonacci expansion, with a break lower targeting the 50% level at 3.463. Near-term support-turned-resistance marked by a rising trend line set from early June, now at 3.528. This barrier is reinforced by the 23.6% expansion at 3.536. A move above the latter level is eyes the February 28 high at 3.601.

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya , e-mail ispivak@dailyfx.com . Follow Ilya on Twitter at @IlyaSpivak

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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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