advice supercargo: Crude Oil, Gold Expected to Decline as the New Year Begins

Sunday, January 1, 2012

Crude Oil, Gold Expected to Decline as the New Year Begins

Talking Points

Crude Oil to Follow Stocks Lower in 2012 on Euro Crisis, Slowing Growth
Gold Outlook Bleak as Fed Backs Off QE, US Dollar Gains on Risk Aversion

WTI Crude Oil (NY Close): $99.65 // +0.29 // +0.29%

European shares are little changed in early trade and S&P 500 stock index futures are treading water, pointing to neutral risk appetite trends and promising a quiet end to the trading week and the year. Liquidity is almost certainly evaporating as market participants wind down for the New Year holiday, meaning any significant directional moves will likely wait until 2012.

Looking ahead to January, risk aversion seems likely to stage a comeback with the Eurozone debt crisis still unresolved and global economic growth expectations pointing to a broad-based slowdown. On balance, such an environment seems most supportive for safe-haven assets like US Treasuries and the US Dollar at the expense of global shares and growth-geared commodities including crude oil.

On the technical front, prices put in a Hammer candlestick above resistance-turned-support at thetop of a falling channel set from mid-November, hinting a pull-up is ahead. Initial resistance lines up at 101.80. The channel bottom, now at 98.93, remains as near-term support.

Crude_Oil_Gold_Expected_to_Decline_as_the_New_Year_Begins_body_Picture_3.png, Crude Oil, Gold Expected to Decline as the New Year Begins

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1545.97 // -9.45 // -0.61%

With only hours left before global exchanges shutter for the New Year holiday, little can be expected in terms of significant directional momentum. Looking to 2012, the path of least resistance appears to favor weakness as the Fed?s abandonment of QE saps demand for gold as an inflation hedge while safe-haven capital inflows boost the US Dollar, amounting to a de-facto headwind.

Sizing up the chart setup, prices are showing a Hammer candlestick above support at 1532.45, the September 26 wick low, pointing to a corrective bounce ahead after gold took out major multi-year trend line support yesterday. Trend line resistance lines up at 1569.85. Renewed selling through support initially exposes 1477.99, the July 1 low.

Crude_Oil_Gold_Expected_to_Decline_as_the_New_Year_Begins_body_Picture_4.png, Crude Oil, Gold Expected to Decline as the New Year Begins

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $27.70 // +0.59 // +2.19%

As with gold, the fundamental landscape appears to favor weakness in the new year but little is likely to materialize in the remaining hours of 2011. Prices put in a Hammer candlestick at the bottom of a falling channel set from early November, hinting an upswing is ahead. Near-term resistance is at 28.41, while the next significant support level is marked by the September 26 low at 26.05.