WTI Oil, Gold and the S&P 500

By Alex Gurr

The oil markets showed promise last week, with WTI breaking through critical resistance at $56 following a weaker than expected crude inventories report from the United States. The WTI bulls found further momentum after a report by the EIA indicated that proven reserves in the US had dropped to their lowest point since 2010, which has suggested to the markets that the incredible run of high US inventories might have reached a peak. This has excited the bulls and lifted the WTI price higher, but at the same time the current stockpiled reserves in the US still sits at an 80-year high at 483.7 million barrels and I remain cautious how high the bullish momentum can extend.

Saying that, I do feel that a push towards $59 for WTI is a real possibility now that the resistance at $56 has been surpassed. However, the oversupply in the markets is still extremely high and this will likely continue to weigh on investor sentiment. I also feel that the chances of strong pullbacks in price remain likely.

Bullish momentum for Gold seems to have stalled around the $1205 area after the metal made a strong comeback as optimism regarding a US interest rate hike as early as June drifted away. Pushed back US interest rate expectations increased demand for the precious metal. Although the expectations remain high for the Federal Reserve to begin raising interest rates this year, I remain slightly upbeat on the prospect of Gold rising higher because the recent data from the United States has hardly provided the Federal Reserve with pressure to begin rate hikes as early as was previously being priced into the USD.

Inflation in the United States remains weak, while other economic releases have suggested economic growth is slowing down and this week’s housing data might confirm this further. Due to the recent data from the United States being rather lackluster, the S&P 500 has failed to shift into a higher gear and could be set to encounter further profit-taking if soft economic data continues to be a trend in the United States. I personally feel that the markets are looking at the prospect of another bearish consolidation and if the upcoming housing data continues to point towards economic data softening, we might see some further bearish momentum in indices.

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