Commodities: Gold, Oil Vulnerable on Fiscal Cliff Jitters

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By Ilya Spivak | December 21, 2012 1:57 AM EST

DailyFX

Commodities may reverse course lower as risk sentiment stumbles amid continued signs of deadlock in US "fiscal cliff" negotiations.

Talking Points

  •  Crude Oil, Copper May Turn Lower as "Fiscal Cliff" Jitters Turn Acute
  •  Gold and Silver Vulnerable if Risk Aversion Boosts US Dollar Demand Anew

Commodity prices are treading water as markets wait for direction amid uncertainty surrounding US fiscal cliff negotiations. Divergent headlines have seen markets seesawing throughout the week but the fast-approaching Christmas holiday - the would-be deadline for a deal to emerge - appears to be creating a sense of urgency and riskaversion may take hold absent signs of a breakthrough.

Such an outcome is likely to weigh on sentiment-linked crude oil and copper prices. It may also reboot haven demand for the US Dollar, creating applying de-facto selling pressure on gold prices. The third revision of third-quarter US GDP figures, November's Existing Home Sales report, and the weekly Jobless Claims data set headline the economic calendar.

WTI Crude Oil (NY Close): $89.51 // +1.58 // +1.80%

Prices completed an Ascending Triangle chart pattern with a break above resistance at 89.19, exposing initial resistance at the December 3 high (90.31). Overall, the Triangle pattern implies a measured upside target at 94.04, which line up closely with a falling trend line capping prices since late-February. Alternatively, a drop back below 89.19 aims eyes support at 85.96.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1667.25 // -3.85 // -0.23%

Prices plunged through supports at 1692.41 and 1677.84, the 50% and 61.8% Fibonacci expansions respectively. Sellers now aim to challenge the 76.4% level at 1659.90, with a push below that targeting the 100% mark at 1630.97. The 1677.84 level has been recast as near-term resistance, with a push back above that aiming for 1692.41 anew.

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

Spot Silver (NY Close): $31.04 // -0.60 // -1.89%

Prices broke through support at 31.47, the 61.8% Fibonacci expansion. Sellers are now aiming to challenge the 76.4% level at 30.78, with a break below that targeting the 100% expansion at 29.66. The 31.47 level has been recast as near-term resistance. A reversal back above that exposes channel support-turned-resistance at 31.86.

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

COMEX E-Mini Copper (NY Close): $3.606 // -0.048 // -1.31%

Prices are moving lower as expected after putting in a Bearish Engulfing below resistance at a falling trend line set from the September 14 high, taking out support at the 38.2% Fibonacci retracement (3.631). Sellers now aim to challenge the 23.6% level at 3.544. A break below that exposes 3.490. The 3.631 level has been recast as near-term resistance.

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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