Crude Oil Sets Sights on April High
WTI Crude Oil (NY Close): $112.29 // +0.84 // +0.75%
Prices are on pace to test the April 11 high at $113.44, a barrier reinforced by support-turned-resistance at a rising trend line set from the lows in mid-February, with a breakout to the upside exposing the $115.00 figure. Initial support lines up at $109.37, the 23.6% Fibonacci retracement of the 3/16-4/11 advance.
Risk sentiment trends remain in focus, with short-term correlation studies pointing to the strongest link between the WTI contract and the MSCI World Stock Index in four months (0.71). With that in mind, S&P 500 stock index futures are pointing higher ahead of the opening bell on Wall Street, hinting the path of least resistance favors the upside over the near term.
With that in mind, a sharp rise in Treasury yields ahead of this week’s 2-, 5-, and 7-year bond sales amid fears that the recent S&P downgrade of the US’ credit outlook will boost borrowing costs may prove to weigh on sentiment. Therefore, traders will keep an eye on Monday’s sale of $56 billion in 3- and 6-month paper to set the tone for longer-term maturity auctions later in the week.
Commodities – Metals
Gold, Silver Set Record High on China Buying Bets
Spot Gold (NY Close): $1506.85 // +0.60 // +0.04%
Prices gapped higher through resistance at $1508.95, the 200% Fibonacci extension of the 3/7-3/15 downswing, to challenge the top of a rising channel in place since mid-March. A break above this boundary exposes the 238.2% Fib at $1533.44. The 200% Fib level has been recast as near-term support.
Precious metal prices soared in overnight trade following a report from Century Magazine that claimed China plans to invest some of its more than $3 trillion in FX reserves in various assets including energy and precious metals. PBOC chief ZhouXiaochuan has said the current build-up has exceeded “reasonable” levels, while independent reports have pegged the “right” amount of FX reserves for China at no more than $1.3 trillion.
On balance, this hints a substantial amount of capital is due to enter commodity markets, suggesting prices will continue to press higher over the near term as traders returning from the long holiday weekend digest overnight news-flow.
Spot Silver (NY Close): $47.25 // +0.65 // +1.40%
Prices gapped above resistance at the top of a rising channel in place since late January, setting a new record high at $49.78. The metal is now in uncharted territory, making forecasting decidedly difficult, but deeply overbought relative strength studies suggest the threat of reversal is increasingly high. The channel top, now at $46.91, stands as near-term support.
The short-term directional correlation between gold and silver remains firm, suggesting the two metals will continue to move along the same trajectory. The gold/silver ratio has set a new record low however, meaning the cheaper metal is likely to continue outperforming its more expensive counterpart.
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