Gold, Silver and Oil Trading Outlook

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The Overall Fundamentals

Commodities rebounded last week, fueled by Greece's approval of the austerity measures and some encouraging US economic data.

Crude Oil prices dove early in the week after the IEA announced to release 60 mmb of strategic petroleum reserves ( SPR ) in 30 days. But, the impact faded as sentiment improved during the week, and as the agency details came into the Light.

The US Fed's US$600B+ bond-buying program (QE-2) officially ended on June 30 with a whimper, and there are debates on whether the Fed should introduce something called QE-3, which Shayne and I believe is already in place awaiting announcement from Jackson Hole later this Summer, as the US economy has shown signs of slowdown.

If the US Fed announced a new QE immediately it would be too soon for it to implement further easing measures as the impact of QE-2 is not yet fully calibrated in the numbers.

Fed Chairman Ben Bernanke said that 'a little bit of time' is needed to 'see what happens would be useful 'before deciding the next step.

We believe the end of QE-2 without follow-through of more money measures may be negative for Gold as cheap money for speculative Gold investment slows.

That said, the precious Yellow metal is really supported by physical demand after the seasonally weak Q-3 and investment demand in the longer-term especially from China, India and emerging markets.

This week the focus will be on 3 central bank meetings (RBA, ECB and BOE). We here at LTN expect both the RBA and the BOE will leave interest rates unchanged while the ECB will raise the main refinancing rate to 1.5% to cool any potential inflation.

Gold and Precious Metals

Gold fell Friday as approval the Greek austerity bill averted immediate default and hence reduced demand for safe-haven assets.

The precious Yellow metal declined to 6-wk low at 1478.3 before finishing at 1482.6. Thanks to the steady movement in the remainder of the week, the benchmark contract slipped -1.21%, thus, avoiding an abrupt weekly loss.

Silver followed Gold falling to as low as 33.47 before finishing at 33.71 Friday. Due to weaker fundamentals and its volatile nature, the precious White metal declined 2.73% on the week.

The PGMs: Platinum and Palladium rose +2.16% and +3.55% respectively, helped by the rise in market sentiment, players view the ongoing wage negotiations between mining companies and labors as a threat to output.

According to latest reports by Johnson Matthey and GFMS, the demand/supply outlook for Platinum will be balanced, while that for Palladium will be in deficit.

Johnson Matthey forecasts the Platinum supply will rise a bit this year.

On the demand side: gross automotive and industrial demand for Platinum will increase as economic growth continues. But, the aftermath of the earthquake and tsunami in Japan has some lingering effects locally. Jewelry and investment demand will remain resilient.

The GFMS expects Platinum supply in North America will rise strongly while that in South Africa and Russia will be stable.

Meanwhile, autocatalytic recycling as well as scrap will rise. Demand will rise, but should stay below pre-crisis level. And, though gains in autocatalytic and industrial demand will be offset by increase in supply, investment demand will remain resilient.

With regard to Palladium: Johnson Matthey expects supplies will decrease, as demand grows, driven by the automotive and chemical sectors in emerging markets.

Jewelry demand in China and global investment outlook are less certain.

The GFMS forecasts Palladium supply to rise mainly from mine production in North America and a rise in scrap.

Autocatalytic demand will rise on higher gasoline-fueled vehicle production.

Geographically, growth in the US will be weaker than in Europe. Growth in China may slow significantly in the aftermath of the Japanese disasters. Jewelry and retail investments are expected to decline.

Crude Oil

 

The complex rose with WTI and Brent crude futures rising +4.15% and +6.33% respectively.

Fuel prices also strengthened with US heating oil and gasoline prices rising over +6.33% and +7.06% respectively.

Crude Oil prices have rebounded to levels before the IEA's announcement to release strategic reserves.

After announcing on June 23 the release of 60M bbls of Crude Oil in July, the IEA gave more details on the contributions of participating countries in this collective actions last week.

Among 12 out of the 28 member countries participated in the program, the US, Germany, South Korea, Belgium and the Netherlands will issue tenders to sell government reserves while companies in Japan, France, the UK, Italy, Spain, Turkey, Poland and Belgium will sell their reserves.

The report unveiled that only 39M bbls, 63%, of Crude Oil out of the total emergency release will be sold from government-controlled inventories, suggesting the impact of the IEA's move on Crude Oil prices should be very much less than anticipated.

I believe that the IEA ill thought out and timed effort to bring down Crude Oil prices will fail, and that belief is based on history.

The fact is that the actual amount of Crude Oil released to the market is often less than the potential release.

Note: that before June 23, the IEA adopted 2 coordinated Crude Oil actions, the 1st in Y 1991, at the time of the Gulf War # 1, and the 2nd in Y 2005, after Hurricane Katrina destroyed Crude Oil facilities in the US Gulf.

In January 1991, the IEA activated its Contingency Plan to make available to the market 2.5M BPD of Crude Oil, comprising of 2M BPD of stock-draw, 0.2M BPD of demand restraint and 0.2M BPD of fuel switching and surge production.

Of the US government offered 33.75M bbls only 17.3M bbls was bought.

In Y 2005, the agency implemented a collective action which made available to the market 60M bbls of Crude Oil and Oil products, in response to 'concerns about interruptions to supply as a result of the severe hurricane damage caused by Hurricanes Katrina and Rita in the US Gulf of Mexico'.

Less than 50% of the reserve released was tapped, so, it is my belief that it is likely that the actual amount bought would fall short of the 60M bbls offered. Stay tuned...

The Overall Technicals

Comex Gold (GC)

 

Gold's decline from 1559.3 extended to 1478.3 last week after brief recovery.

The initial bias remains to the Southside this week, and further decline should be seen. The fall from 1559.3 is treated as the 3rd leg of the consolidation pattern from 1577.4 and should extend to 1462.5, Key support, and below.

That said, I am looking for Strong support at 1443/4: 50% retracement of 1309.1 to 1577.4 at 1443.3, 100% projection of 1577.4 to 1462.5 from 1559.3 at 1444.4, to contain any downside action and bring on a rebound.

On the Upside: a clear break of 1514.8, the Key resistance, is needed to signal reversal in here, baring that I will stay cautiously Bearish Gold.

The Big Picture: a short term Top was made at 1577.4 after Gold hits medium term rising channel resistance. But, there is no indication of long term trend reversal yet. Strong support from 1430/40 level, the 1432.5 resistance turned support, trend line at 1434, and a rebound will maintain the Bullish outlook and should eventually bring a up-trend resumption through 1600, the psych mark, after consolidations.

Note: sustained trading below the 1400 mark will raise the possibility of a trend reversal, and will turn the focus back to the 1309.1 support mark for confirmation.

The Long Term Picture: the rise from 681 is treated as resumption of the long term up-trend from the Y 1999 low of 253. 100% projection of 253 to 1033.9 from 681 at 1462 was met, but there is no sign of reversal yet. Sustained trading above 1462.6 may show the way towards 161.8% projection at 1945.6 in the longer term. But, a clear break of the 1309.1 support mark indicates that a medium term Top is formed and correction form 1577.4 would then likely head back to 55 months EMA, now standing at 1066.7. Stay tuned...

Comex Silver ( SI )

Silver's decline from 38.845 extended further to 33.38 last week, so I will stay Bearish as long as the 35.16 resistance mark holds.

I expect a further fall to 32.30, and break there confirms the resumption of the decline from 49.82 to 30, the next psych mark. But a clear break above 35.16 says that the fall from 38.845 has likely completed, and will turn bias back to the Northside for this resistance and possibly higher.

The Big Picture: the steep sell off from 49.82 shows that a medium term Top formed there, ahead of the 50 psych mark. Silver should now be correcting the 5 wave sequence from 14.65; 19.845, 17.735, 31.275, 26.30, 49.82. The correction will likely extend into 26.30/31.275, the cluster support Zone before completion. But, I still anticipate 1 more rising wave before Silver completes the 5 wave up-trend from 8.4 the Y 2008 low to then rise and finally makes an important Top.

The Long Term Picture: the deep sell off from 49.82 raises the possibility that long term up-trend from 4.01 is near completion as it faced Strong resistance from 261.8% projection of 4.01 to 21.44 from 8.4 at 54.032. But, it is too early to confirm a long term reversal yet; a important top should be near, if not at 49.82 I believe. On confirmation of such a reversal, Silver will likely fall towards its 55 months EMA now at 20.45. Stay tuned...

Nymex Crude Oil ( CL )

Crude Oil drew Strong support a 90, the psych mark, last week and bounced. A short term Bottom is in place at 89.61 IMO, and further recovery is favored this week. But, there is no confirmation of completion of fall from 114.83 as long as 102.44 resistance holds, and the decline is still in favor to resume after finishing current recovery. A clear break below 92.66, the minor support, turns the bias back to the Southside 1st IMO. A clear break of 89.61 then targets the Key cluster support Zone at 83.65/85.

The Big Picture: the medium term rebound from 33.2 is treated as the 2nd leg of consolidation pattern from 147.24. The break of 96.22 support serves as the 1st alert of medium term reversal after Crude Oil failed 100% projection of 33.2 to 83.95 from 64.23 at 114.98. The focus is on next cluster support Zone at 83.85, 61.8% retracement of 64.23 to 114.83 at 83.65, 38.2% retracement of 33.2 to 114.83 at 84.10. A clear break and sustained trade there confirms the case of a medium term reversal, and turn the outlook Bearish for test of the 64.23 support mark, and below. But, a Strong rebound above this cluster support Zone retains my medium term Bullish POV, and bring another rise to above 115 level before reversal I believe.

The Long Term Picture: Crude Oil is in a long term consolidation pattern from 147.27, with 1st wave completed at 33.2, 2nd wave from there unfolding. A clear break of 83.85, Key support, confirms that the 2nd wave is finished, and the 3rd wave, a downward wave, should have started targeting a retest of the 33.2 low mark. Stay tuned...



Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world. Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels. www.livetradingnews.com

 



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



This article appears in: Investing , Commodities

Referenced Stocks: CL , SI , SPR

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