Crude Oil Likely to Rise, Gold Under Pressure with Focus on Earnings

Talking Points

• Crude Oil Prices Poised to Advance Along with S&P 500
• Gold Under Pressure as Earnings Results Dampen QE3 Bets

WTI Crude Oil (NY Close): $97.50 // +1.57 // +1.64%

Prices remain firmly anchored to overall risk appetite trends, hinting the path of least resistance points higher over the near term with S&P 500 stock index futures showing healthy gains ahead of the opening bell on Wall Street.

The earnings calendar is in focus, with another long list of major names including US Bancorp and Intel set to report second-quarter results. Broadly speaking, results from the companies that have reported results since the start of the current earnings season have outperformed analysts' expectations by 9.6 percent, and more of the same is likely to prove supportive for shares and the WTI contract alike.

With that in mind, the evolution of the debate over raising the US debt ceiling remains an important risk factor, with yesterday's positive cues in the wake of President Obama's endorsement of a bipartisan plan to trim US debt by $3.7 billion over the next decade is likely to have been thoroughly priced-in and in need of reinforcement at this point. If the initiative proves to be another false start, optimism is likely to evaporate in a hurry, especially with the EU leaders' summit on the Greek debt crisis just around the corner on Thursday.

Technically, prices are forming an ascending triangle chart pattern below resistance at above $99.22, the 38.2% Fibonacci retracement of the drop from the early May swing high, mirroring a similar setup that had been carved out from early May through mid-June. The formation is hinting at bearish continuation, with a break through initial support at $95.30 exposing $94.13 and $92.51.

Spot Gold (NY Close): 1588.45 // -16.40 // -1.02%

Gold reversed sharply lower yesterday after President Obama endorsed the so-called “Gang of Six” bipartisan deficit-reduction plan, sapping safe-haven demand for the metal and (at least according to some news reports) sparking profit-taking after prices rose for 10 consecutive sessions for the first time since 1980.

The drop validated yesterday's suspicions of a pullback, taking out support at out the lower boundary of a near-term rising channel. From here, sellers target the 23.6% Fibonacci retracement level at $1578.82, with a break below that exposing $1559.56. Near-term resistance stands at the $1600 figure.

A strong showing on the earnings front is likely to dampen QE3 expectations, sapping demand for gold from investors looking of an inflation hedge. However, the continued evolution of the US deficit reduction debate may help the metal find support if recent progress loses traction. Losses may also be capped as jitters about Thursday's EU summit creep to the forefront.

Spot Silver (NY Close): $39.06 // -1.49 // -3.66%

From a fundamental perspective, the drivers of silver mirror those guiding gold prices. Specifically, earnings-driven news flow is likely to put downward pressure on the metal amid waning inflation hedge demand, but US and EU debt concerns continue to linger as supporting forces in the background and could jump back into the forefront at a moment's notice. Technically, an overt Bearish Engulfing candlestick pattern below Fibonacci resistance at $41.06 points the way lower, with a confirmed break below $39.01 exposing near-term downside targets at $37.17 and $36.29.

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