Gold and Crude Oil Set Fresh 2014 Highs On Turmoil In The Ukraine

Talking Points

• Geopolitical tensions fuel breakouts for crude oil and gold
• Positive US ISM print overshadowed by Ukraine turmoil
• Copper finds support following six straight days of declines

Turmoil in Eastern Europe remains at the dominant driver of price action in the commodities space as traders pushedgold and crude oil to fresh 2014 highs during US trading. With a light economic docket over the session ahead, geopolitical tensions and emerging markets concerns are likely to offer the greatest influence on the precious metals and energy commodities.

Gold and WTI Breakout on Ukrainian Tensions

Mounting tensions between Russia and the Ukraine have sparked broad-based risk aversion in the market as traders retreat out of equities and move towards gold as an alternative store of wealth. The prospect of an escalation towards conflict has also bolstered demand for crude oil on concerns of supply disruptions from Russia, who supplies roughly one third of Western Europe’s oil imports according to Eurostat.

Continued Turmoil Likely to Spark Surge in Volatility

Investor sentiment remains fragile to negative developments regarding the Ukrainian situation which appears to be overshadowing the release of positive economic data for the time-being. The market largely shrugged off a better-than-anticipated manufacturing reading out of the US overnight that provided a bullish signal for future economic growth in the world’s largest economy.

With a light economic docket in the session ahead, if the powder keg in Eastern Europe goes off, gold and oil are likely to surge further. However, if we see tensions dissipate then the commodities may be unable hold onto their panic-driven gains, and thus vulnerable to a retracement.

CRUDE OIL TECHNICAL ANALYSIS – Crude has closed at a fresh 2014 high and cleared selling pressure around the $103.40 mark. With an uptrend still in place we are left with a bullish technical bias for WTI. A potential target may be offered by the September 2013 high at $108.00.

Daily Chart - Created Using FXCM Marketscope 2.0

NATURAL GAS TECHNICAL ANALYSIS – Buyers remain prepared to support the natural gas price at the 4.450 mark as the commodity stabilizes following last week’s dramatic declines. With the 20 SMA signaling a downtrend, a corrective bounce at this stage would be seen as an opportunity to enter new short positions. Resistance is likely looming at former support near 4.917 (the 61.8% Fib Retracement level).

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS – Gold has set a fresh high for the year with the precious metal closing above previous resistance at 1,344. With the upside breakout and an uptrend still in place a bullish technical bias is preferred. A possible target is offered by the October 2013 highs near $1,360. More gold technical analysis available here.

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS – Silver is lagging behind its bigger brother gold as the metal trades near key resistance at 21.50. The uptrend remains intact with prices above their 20 SMA. However, the rate of change indicator is suggesting a fading of momentum.

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS– Copper is flirting with support at $3.175 following a break through the 23.6% Fib Level at $3.235. With a shift in the trend indicated by prices moving below their 20 SMA a bearish technical bias is maintained. The next level of buying support is likely at the November lows near 3.140.

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by David de Ferranti, Market Analyst, FXCM Australia

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