Crude Drops Despite Strong Retail Sales, Gold Inches Higher as Yields Continue to Rise

Commodities – Energy

Crude Drops Despite Strong Retail Sales

Crude Oil (WTI) - $87.64 // $0.64 // 0.72%

Commentary: Crude oil continued to fluctuate in a narrow range on Tuesday, as the commodity finished the session down $0.33, or 0.37%, to settle at $88.28. Though U.S. equity markets were up for most of the day thanks to strong retail sales (0.8% vs 0.6% expected; core retail sales 1.2% vs 0.6% expected), crude was modestly lower throughout the day with no catalyst to spur a breakout just yet. Incidentally, U.S. equities ended up giving back all of the day’s gains following the Federal Reserve policy decision, but we don’t make too much of any of this trading action for prices for crude and equities are sitting at 2+ year highs and profit taking here and there is to be expected.

Tomorrow brings the usual Wednesday report on U.S. petroleum inventories and we will see whether the six-week streak of a declining surplus has been extended. The API report didn’t contain any fireworks (Crude -1.4, Gasoline +2.4, Distillate +2.0), but the 5-year average comparisons are extremely difficult with a crude draw of -3.1 million and a total petroleum draw of -7.9.

Technical Outlook: Overall positioning is little changed from yesterday. Prices have stalled having corrected higher to retest support-turned-resistance at a rising trend line set from late October. Broadly speaking, the bias remains bearish, with a resumption of the down move initially targeting the 23.6% Fibonacci retracement of the 8/25-12/7 rally at $86.04.

Commodities – Metals

Gold Inches Higher as Yields Continue to Rise

Gold - $1395.03 // $1.22 // 0.09%

Commentary: Gold managed to eke out at $2.07, or 0.15%, gain to settle at $1396.25 despite the fact that U.S. Treasury yields continued to spike higher. The metal was well off the day’s high near $1408 though. 10-year Treasury yields are now sitting just shy of 3.5%, a full 100 basis points above levels of November when the Fed unveiled its highly-anticipated QE2 program.

Gold ETF holdings fell about 150K troy ounces, hitting their lowest level in about two weeks. We will be watching these figures closely for indications of whether higher yields are reducing investment appetite in gold.

Technical Outlook: Prices are showing a bearish Shooting Star candlestick pattern below resistance at 1407.28, the 23.6% Fibonacci retracement of the 11/16-12/7 rally. Confirmation of a downward reversal requires a break below from support at a rising trend line set from mid-November (now at $1386.27).

Silver - $29.52 // $0.05 // 0.17%

Commentary: Silver inched lower by $0.06, or 0.19%, to settle at $29.47. Earlier, prices approached $30 before selling off steeply as traders took profits. ETF holdings inched higher to a new record just above 487.5 million troy ounces.

The gold/silver ratio rose slightly to 47.3, 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 have put in a Doji candlestick below resistance at $29.55, the 14.6% Fibonacci retracement of the 10/22-12/07 rally. This hints at a move lower ahead, with initial support lining at 28.85, the 23.6% Fib. A larger reversal would be signaled by a break through the rising trend line set from late October, now at $28.37.