Gold, Silver and Crude Oil, GLD, SLV, USO

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SPDR Gold Trust ( ETF ), NYSE:GLD, iShares Silver Trust ( ETF ), NYSE:SLV, United States Oil Fund LP ( ETF ) NYSE:USO

Red's Weekly Report on Gold, Silver and Crude Oil +

Charts by Omega Research

10 April 2011

Paul A. Ebeling, Jnr

The Overall Fundamentals

Commodities closed higher last week as driven by weaker USD. Strength in Crude Oil prices was led by Brent Crude that broke above 120 bbl and reached as high as 126.91 bbl before settling at 126.65 bbl, up +6.70% on the week.

On top of geo-political tensions in the MENA region, fears of a slowing in Crude Oil supply were exacerbated by the delayed elections in Nigeria and strike in Gabon.

Nat Gas was weak in both the US and Europe on mild weather demand.

In the precious metal complex, Gold rallied to a new record high of 1476.4 oz, and Silver continued to outperform Gold, rising above 40 oz and gaining more than+7% on the week.

We here at LTN believe that the White metal will rise to 50 by the end of this year or sooner, and that there is strong evidence that Gold will rise above 1600 oz. The Base Metals also rose despite PBOC' Key interest rate hike. Tin rose to a record, + Copper and Zinc climbed to 1-month highs on optimism about the continuing Global economic growth outlook.

Gold and Silver

Gold and Silver prices gained +3.11% and +7.59%, respectively on the week.

The recent out performance of Silver over Gold has the Gold/Silver Ratio to 36.07, the lowest level since Y 1983.

Strong investment demand has Silver's price higher, and I believe it will continue this year so long as geo-political tensions, sovereign crisis in the EU peripherals, debt concerns in the US, uncertainties of natural disasters remain a threat to Global economic growth and the financial markets.

Rolling 12-mo sales of American Eagles Silver Bullion Coins rose to a record high of 38.68M oz in February, signaling US consumers are worried about the nation's political and financial situations.

The White House and the Congress reached a last-minute deal Friday midnight, preventing the government from being closed.

But, the parties face heated debates on issues such as raising the debt ceiling, and fiscal consolidation.

Fitch Ratings said that it is extremely unlikely that the US will default. But, while the country's AAA rating is maintained, its debt-to-GDP ratio is projected to reach 100% in Y 2012, the highest among AAA-rated countries.

The rating agency expects the US government to make tough choices on tax and spending that are necessary to place public finances on a sustainable path.

Weakening fiscal conditions, and expansionary monetary policies are deteriorating confidence on the USD, thus triggering demand for hard assets.

Apart from consumers and investors, State governments find precious metals appealing too.

As I reported earlier, the State of Utah passed a bill allowing Gold and Silver coin to be used as legal tender.

According to Ron Paul, a Republican Congressman and potential Y 2012 Presidential candidate, "the Gold Standard would keep the US Treasury from printing money and destroying the nation's middle class".

A committee has been set up to study how Utah residents can pay their taxes with Gold and Silver coins.

With the bill passed in Utah, other States that proposed similar measures will likely be approved sooner rather than later IMO.

The Base Metals

The Complex strengthened driven by the broad-based rally of the commodity sector.

Copper gained +5.50% on the week as players become more optimistic after Rio Tinto ( RIO ) said demand in China will 'outpace supply' despite government's tightening measures.

After rising to a record of $10160 ton in February, Copper fell below $9000 tom in mid-March as China's imports dropped and the nuclear crisis in Japan raised concerns over the Global economic recovery.

But the rebound drove the Red metal back to elevated marks. I do not rule out the possibility for Copper to correct some in the months ahead as stockpiles in China remains ample and Japan may lower imports, the trend will reverse and Copper will resume its rally later in the year.

China will continue to be the World's growth engine despite tightening, and with that, demand for Copper will increase as Japan begins its reconstruction.

Crude Oil

Tensions in Libya rose as NATO claimed last week that fighting between the rebels and government troops caused at least 1 fire at an Crude Oil facility in the region of Sarir'.

Mr. Shokri Ghanem, Chairman of state-owned National Oil Corp, said the country's Crude Oil output dropped to only 250-300K BPD from approximately 1.6M BPD earlier this year.

It is expected that Libya will be out of the Crude Oil market in the medium-term now.

In Nigeria elections were delayed due to logistic issues. Presidential elections and gubernatorial elections will now be held on April 16 and April 23 instead.

The postponements increase uncertainties in Africa's largest Crude Oil producer, particularly as polls in Y's 2003 and 2007 were marred by attacks, Crude Oil theft and destruction of Oilfields and production facilities.

Nigeria's Crude is light and sweet quality. The country's exports grades ranged from API 29 or 47 degrees with low sulfur contents of 0.05 - 0.3%.

It ships around 40% of its Crude to the USA. With that Shayne and believe Nigerian Crude is similar in quality to Libyan Crude which is mostly exported to Europe.

That being the case, any disruption in Crude Oil production in Nigeria will drive Crude Oil prices North in the near term.

A 4 day strike in Gabon, sub-Saharan Africa's 4th largest Crude Oil producer, halted production of 240K BPD. While the labor action ended Monday, it too affected Crude Oil prices during this chaotic period.

OPEC does not see the need to raise production limits despite the rally in Crude Oil's price. Iraq's Deputy Prime Minister for Energy Affairs Hussain al-Shahristani, a former Oil Minister, said the cartel can do little to rein in Crude Oil prices. He said 'all that OPEC can do is to provide the market with the Crude Oil it needs and it is doing that, the cartel has not seen any slowdown in growth."

The hidden agenda there may be that the Crude Oil producing countries are happy to see prices rise

According to the Institute of International Finance ( IIF ), the budgetary break even Crude Oil price for Saudi Arabia, the World's largest Crude Oil producer, will increase from 68 bbl last year to 88 bbl in Y 2011 and then 110 bbl in Y 2015 as the Kingdom increases public spending in an attempt to stem protests.

10 yrs ago, the Kingdom was able to balance its budget with Crude Oil prices at 20-25/bbl. This problem is not only in Saudi Arabia, but also in other OPEC member nations and the rise in Crude Oil prices helps them pay the increase bills.
Nat Gas

Nat Gas prices fell with US gas losing -7.36% and UK gas down -3.56%.

Mild weather is lowing heating and cooling demand on both sides of the Atlantic. In the US, DOE/EIA's report of less-than-expected inventory draw caused further selling.

Gas storage fell -45 bcf to 1579 bcf in the week ended April 1. Stocks were -86 bcf less than the same period last year and -10 bcf, or +0.6%, above the 5-yr average of 1569 bcf.

Nymex Nat Gas futures trading volume rose to a record of 546 752 contracts last week. Separately, Baker Hughes ( BHI ) reported a drop in Gas rig counts by -2 units to 889 units in the week ended April 8.

UK's Nat Gas forward curve has experienced deeper "contango" as the front-end of the curve has been pressured by record LNG shipments to the UK and low demand as a result of mild weather while contracts for farther dates have been supported by Bullish expectations of higher LNG demand from Japan, potential disruption in LNG supply amid geopolitical tensions and prolonged suspensions of gas supply from Libya to Italy.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Commodities
Referenced Symbols: BHI , ETF , IIF , RIO

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