Crude Oil Falls for First Time in Six Sessions, Gold Tries to Find Direction

http://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/commodities/2010/12/28/Crude_Oil_Falls_for_First_Time_in_Six_Sessions_Gold_Tries_to_Find_Direction.html

Commodities – Energy

Crude Oil Falls for First Time in Six Sessions

Crude Oil (WTI) - $91.09 // $0.09 // 0.10%

Commentary: Crude oil fell $0.51, or 0.56%, to settle at $91 after China raised interest rates for the second time since 2007 this past weekend. U.S. equity markets also sold off initially, but then proceeded to recover all of their losses to close at a new 2-year high. At the moment, risk assets can be best described as ‘drifting higher’ as prices respond to an extremely favorable backdrop of low interest rates and accelerating economic growth.

The opportunity for corrections in 2011 will take place when this bullish paradigm is upset in some way. Already we have seen interest rates on the long end make a leg higher. If they make another such move, say, the 10-year Treasury at 4-5%, we may see some impact on equities and crude. Then there is the prospect of potentially many more rate hikes from China. If growth in the world’s second largest economy slows more than expected, that will have a tremendous impact on crude. Until then, however, the trend is decisively higher.

Technical Outlook: Prices are showing a bearish Harami candlestick pattern below resistance at the upper boundary of a rising channel set from August (now at $92.37). A move lower from here sees initial support at $89.87.

Commodities – Metals

Gold Tries to Find Direction

Gold - $1390.85 // $7.10 // 0.51%

Commentary: Gold did a whole lot of nothing on Monday, as the metal continues to digest this year’s 26% gains. Prices are creeping up in overnight trade, however, with another test of $1400 potentially in the cards. Overall, gold is currently in a very shallow uptrend from a near-term perspective. Long-term, of course, the metal is in an extremely steep uptrend, having put in ten straight years of annual gains. Performance in 2011 will be dependent on whether investment interest in the metal holds up in the face of an improving economic environment and much improved performance in equity markets and by other economically-sensitive commodities such as oil and copper.

Technical Outlook: Prices remain locked between $1392.46 and $1380.47, the 32.8% and 50% Fibonacci retracements of the 11/16-12/7 rally, respectively. A break lower exposes the 61.8% Fib at $1368.49, a boundary reinforced by a rising trend line set from mid-November. Meanwhile, a move through near-term resistance exposes the 23.6% Fib at $1407.28.

Silver - $29.51 // $0.26 // 0.87%

Commentary: As gold consolidates just under $1400, silver seems to be doing the same but under the $30 level. Silver has only had one close above that level this year.

The gold/silver ratio fell to 46.2, near the lowest levels since February 2007. (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: Prices continue to consolidate between the 14.6%and 23.6% Fibonacci retracements of the 10/22-12/07 rallyat $29.55 and $28.85, respectively. A break above near term resistance exposes the latest swing high at $30.70. Alternatively, a push lower targets the 38.2% Fib at $27.70.

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