The Overall Fundamentals
Commodities rebounded last week, fueled by Greece's approval
of the austerity measures and some encouraging US economic
Crude Oil prices dove early in the week after the IEA
announced to release 60 mmb of strategic petroleum reserves (
) 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
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
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
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
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
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
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
The GFMS expects Platinum supply in North America will rise
strongly while that in South Africa and Russia will be
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
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
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
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.
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
I believe that the IEA ill thought out and timed effort to
bring down Crude Oil prices will fail, and that belief is based
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
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
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 (
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
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
Nymex Crude Oil (
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
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