Commodities Vulnerable to Disappointing ISM Data

Commodity prices are showing mixed results in European trade as markets await US ISM manufacturing data, where consensus forecasts suggest factory-sector growth accelerated in March after a pullback in February snapped three consecutive months of improvement. The print carries heavy implications for global economic growth expectations at large as traders look for accelerating recovery in North America to offset a recession in the Eurozone and a related slowdown in China (data released over the weekend notwithstanding).

The risk of a downside surprise on the ISM reading seems significant however following uniformly disappointing results on leading activity surveys released last week. This sets the stage for selling pressure to emerge across the spectrum of risk-sensitive assets including copper and crude oil, where prices remain closely anchored to the MSCI World Stock Index (on 20-day percent change correlation studies). Such an outcome likewise opens the door for the US dollar (ticker: USDollar) to advance on the back of safe-haven flows, which bodes ill for gold and silver both in de-facto terms (considering both metals are benchmarked against the greenback) and with regard to reduced demand for an alternative to paper currencies.

Spot Gold (NY Close): $1,668.35 // +6.78 // +0.41%

Prices found support at 1,658.49, the 23.6% Fibonacci expansion level, and swung back above resistance at 1,690.04. The bulls now appear set to challenge the 38.2% Fib retracement at 1,690.04. Alternatively, a break back below 1,658.49 targets 1,634.62.


Spot Silver (NY Close): $32.27 // +0.25 // +0.08%

Prices continue to consolidate below resistance at 32.93, the former neckline of a Head and Shoulders (H&S) top carved out between late January and mid-March, and horizontal support at 31.04. A break blower exposes the first downside barrier at 29.79. The H&S setup broadly implies a measured downside target at 26.84.


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