Crude Oil, Gold Look to Take Cues from US ADP Data and Lockhart

Talking Points

• Crude Oil to Follow S&P 500 as Markets Focus on US ADP Jobs Report
• Gold Shifting Gears to Move with Risky Assets Amid Fed Stimulus Hopes

WTI Crude Oil (NY Close): $88.90 // +1.63 // +1.87%

Oil prices shrugged off a dramatic drop in US consumer confidence as well as the largest weekly increase in crude inventories in five months (per preliminary API figures) after the Federal Reserve published minutes from Augusts' FOMC meeting, which the market interpreted as raising the chance of additional stimulus being introduced at the September 20-21 policy announcement.

Looking ahead, this may produce somewhat counter-intuitive trading dynamics over the near term, with growth-geared assets including the WTI contract rising on poor economic data amid expectations that continued deterioration in the economy will bolster the likelihood that further easing will indeed materialize. This puts the spotlight on the US ADP employment report over the coming 24 hours, with expectations calling for a 100k increase in August to mark the second consecutive month of slowing private-sector hiring.

On the technical front, prices cleared resistance at $88.15, the 50% Fibonacci retracement of the drop from the late-July swing high, with the bulls now aiming for the 61.8% level at $91.10. The 50% Fib has been recast as near-term support.

Spot Gold (NY Close): 1835.43 // +47.00 // +2.63%

The resumption of speculation about additional Federal Reserve stimulus measures stands to positively realign gold prices with risky assets. The new trading dynamic was on full display today as the yellow metal pushed higher even as shares advanced.

Besides the US ADP report – where a soft reading is likely to encourage gold higher – comments from Atlanta Fed President Dennis Lockhart will be interesting to consider. Lockhart is a moderate with a slight dovish lean who has recently said that while it's appropriate for the central bank to have a “very high bar” to trigger a third round of quantitative easing, it has “plenty of bullets” left to address a deeper slowdown in the recovery. With that in mind, traders will be keen to get his take on what could be the trigger for the FOMC to act anew and what – if not outright QE3 – that action may look like.

Sizing up the technical picture, prices are testing resistance at 1847.66, the 23.6% Fibonacci retracement level, with a break higher targeting the underside of a previously broken Andrew's Pitchfork bottom now at $1898.49. Initial support lines up at $1808.05, the 38.2% Fib.

Spot Silver (NY Close): $41.31 // +0.44 // +1.08%

The near-term fundamental drivers of silver appear broadly aligned with those of gold as Fed stimulus speculation continues to swirl around financial markets. As with the yellow metal as well as crude oil, this puts the spotlight on the US ADP report as well as Dennis Lockhart's commentary, with anything supportive of renewed policy easing likely to stoke the silver prices higher (and vice versa).

The technical picture is little changed from yesterday, with prices wedged between the 38.2% and 50% Fibonacci retracements levels at $41.45 and $40.60 respectively. Resistance is further bolstered by an Andrew's Pitchfork midline. A break higher targets the 23.6% Fib at $42.50, while renewed selling through immediate support exposes the 61.8% level at $39.75.

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