Crude oil volatility is declining as prices consolidate near the 50% retracement level. Upside and downside risks are largely balanced. Gold may approach $1300 on a break of resistance.

Commodities – Energy

Crude Oil Near 50% Retracement Level

Crude Oil (WTI)        $76.58       -$0.21        -0.27%
Crude oil pulled back a little over 1% on Thursday, but prices are still holding above $75.50 support. Oil has been benefitting from stability in the financial markets. News out of Europe has so far failed to worsen, and thus traders are reevaluating whether risk assets, including oil, are oversold. Prices have rebounded about 50% of the losses incurred during the entire correction. So where does oil go from here? Inventories across the globe are still at very high levels. OPEC production is steady and its spare capacity is in excess of 5 million barrels per day. On the bullish side of the ledger, the deepwater drilling moratorium will have an adverse effect on production that comes out of the region over the next year and possibly beyond. The most likely outcome is an oil market in which prices continue to gyrate with broader financial markets, but with the potential for limited gains from current levels, as risks to the upside and downside are balanced. The next significant technical resistance level is $80.00 On the downside, $75.50 is the level to watch.

                                                                                                                                                                                                    

Commodities – Metals

Gold Highs a Self-Fulfilling Prophecy

Gold      $1243.70       -$1.45        -0.11%
Gold spiked toward all-time highs in Thursday’s session. There was little news to spur the move; this was merely a continuation of the recent gold strength in an environment in which one would expect it to be weak. Clearly, the Euro or equities are not what driving gold prices currently; for the Euro has been quite firm and equities have been rallying for the most part. Instead, investors continue to pile into gold ETFs at a record pace, acting on a belief that sovereign debt will a problem for a long time to come. In turn, as gold rises, momentum traders pile on and a self-fulfilling type of move develops. Once gold breaks $1250, and by all indications, it probably will soon, there is no telling where the next top will be. That said, the inevitable downturn will likely be just as impressive as the current rise.

Silver      $18.75        +$0.04       +0.21%
Silver made impressive gains in the prior session, as prices approach the upper end of the $18.50 to $18.90 resistance band. If prices manage to break out, the next resistance is the $19.83 level. If gold manages to rally toward $1300, silver will likely make a move above $20, outperforming the more expensive yellow metal. Looking further ahead, the 2008 highs near $21.35 would be the next level to watch.

                                                                                                                                                                                                        
Please send any questions/comments about this article to ispivak@dailyfx.com

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