Gold Finds Interim Support, Oil May Follow on US CPI

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By Ilya Spivak | February 22, 2013 3:08 AM EST

DailyFX

Gold and silver prices have found interim support after yesterday's selloff as traders look ahead to soft US CPI data. Crude oil and copper may follow suit.

Talking Points

  • Gold and Silver Prices Find Interim Support Before US Inflation Report
  • Crude Oil, Copper May Rise if Soft CPI Caps Hawkish Fed Outlook Shift

Crude Oil and copper prices followed gold and silver lower as expected yesterday in the wake of a hawkish shift in tone found in minutes from January's FOMC meeting. The selloff in the cycle-sensitive commodities reflected worries about the implications of unwinding stimulus in the world's largest economy on its still-fragile recovery. The slump in precious metals spoke to eroding demand for anti-fiat assets, with the US Dollar pushing higher as traders scaled back the degree of QE dilution due to threaten the benchmark currency in the months ahead.

Looking ahead, US Consumer Price Index figures come into the spotlight. Consensus forecasts point to a slight tick lower on the headline year-on-year inflation rate, down to 1.6 percent in January from 1.7 percent in the prior month. The outcome would mark the third consecutive decline as well as the lowest reading since July 2012. That may pour a bit of cold water on the nascent hawkish shift in traders' Fed policy expectations. Gold and silver are already finding support before the CPI print crosses the wires. Crude oil and copper continue to sink risk aversion sweeps European exchanges - with disappointing Eurozone PMI numbers compounding ripple effects from the Fed minutes release - hinting they may have to play catch-up once again as Wall Street comes online.

WTI Crude Oil (NY Close): $94.46 // -2.20 // -2.28%

Prices broke below support at 95.14, the 23.6% Fibonacci retracement, exposing the 38.2% level at 99.91. A further below that aims for the 50% Fib at 91.70. The 95.14 level has been recast as near-term resistance, with a break back above that eyeing the 98.02-21 area (marked by the 23.6% Fib expansion and the January 30 high).

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1564.55 // -40.50 // -3.52%

Prices plunged through support at the bottom of a falling channel set from October and the 100% Fibonacci expansion (1569.04). Sellers now aim to challenge the 1538.71-39.35 area marked by the 123.6% Fib and the May 16 2012 close. The 1569.04 level has been recast as near-term resistance. A push back above that eyes the channel bottom (1584.95) anew.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $28.56 // -0.91 // -3.08%

Prices broke support in the 29.62-89 area, marked by the 61.8% Fibonacci retracement and the June 6 high, to challenge the 76.4% level at 28.28. A further drop below that aims for the June 28 2012 low at 26.11. Alternatively, a reversal back above 29.89 targets the 50% Fib at 30.71.

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.608 // -0.042 // -1.15%

Prices are probing sharply below support at the 50% Fibonacci retracement (3.596) to challenge the 61.8% level at 3.551. A further push below that aims for the 76.4% Fib at 3.494. Alternatively, a reversal back above 3.596 eyes the 38.2% Fib at 3.642.

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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