Gold Rises on Dollar Slump
Gold – Gold is higher in early trading, but is off of overnight highs after prices failed to test record intraday highs. The precious metal has a host of positive factors going for it at the moment, including rising energy costs and a slumping U.S. dollar. The greenback figures to stay soft due to the lackluster economic showing of late, as well as the increasing likelihood that the Fed will continue to trim rates. The central bank is in an awkward position at the moment as a result of the commodity price boom that is coinciding with an economic slowdown – commodity prices typically fall during periods of slow or negative growth in the economy, making it easy for central banks to simply trim rates to spur economic expansion. Expanding economies in China and other developing nations have increased demand for raw materials and decimated stockpiles. Last week's inflationary CPI report points toward the ideal scenario for Gold traders – high inflation and slow growth. Tomorrow's PPI numbers are likely to show producer prices increasing at an even higher pace than those of consumers, adding further price support for the yellow metal. The daily chart for April Gold remains bullish, but the last three candlesticks show a fair amount of indecision among traders. The chart appears to be forming a bullish flag pattern, which may lead to further price advances. Momentum is showing some bearish divergence from the RSI indicator, pointing to further consolidation or possibly even a pullback in prices. Support comes in at 939.60, 931.40 and 924.70, while resistance can be found at 954.50, 961.20 and 969.40.
Crude Oil – Crude Oil futures are little changed this morning, but geopolitical tensions figure to loom large this week. Turkey's incursion into the Kurdish region of Iraq has not disrupted Oil flow from the nation, but there are worries that an extended ground offensive may eventually affect supplies. Meanwhile, the U.S. is considering new sanctions against Iran over its nuclear program. The Oil-rich nation threatened to strike back at countries supporting the new sanctions, which may mean decreased exports from OPEC's second largest producer. Traders will continue to monitor these political events this week, but most of the market focus will be on next week's OPEC meeting. There really is no consensus among traders on what the cartel plans to do, with compelling arguments on both sides. On one hand, current production quotas may lead to supply excesses and steep price declines, but a decrease in production may be the straw that breaks the global economy's back, leading to economic contraction. The April Crude chart shows a spinning top candlestick after breaking through the $100 mark followed by a sharply lower session, suggesting the possibility of further declines from the century mark. Adding to this bearish sentiment, the momentum indicator is diverging from both price and RSI. Support comes in at 97.52, 96.24 and 95.31, while resistance can be found at 99.73, 100.66 and 101.94.
S&P – Stock index futures are higher this morning on bullish spillover from Friday's session. The market was able to finish last week on a positive note on speculation that troubled bond insurer Ambac Financial will be bailed out by several large banks. This good news could be met by some skepticism given that many of the banks involved in the bailout talks are have trouble of their own. Adding to the positive market sentiment, pharmaceutical giant Genentech gained FDA-accelerated approval for its breast cancer drug Avastin – a surprising move given the fact that sector analysts gave the drug less than a 50 percent chance of gaining such approval. Today's only major economic release is existing home sales data, which is expected to show sales declining 0.09 million average annual rate. The March e-mini S&P chart shows that market continuing to trade within the boundaries of the wedge pattern that has been forming since the beginning of the year. The congestion on the chart has gotten tighter and tighter, suggesting the market will be forced to determine a longer-term direction in the near future. Momentum is outpacing the RSI indicator, hinting toward a positive short-term bias. Support comes in at 1335.75, 1316.00 and 1305.25, while resistance can be found at 1366.50, 1377.25 and 1396.75.
Rob Kurzatkowski, Commodity Analyst
