SPDR Gold Trust (
), NYSE:GLD, iShares Silver Trust (
), NYSE:SLV, United States Oil Fund LP (
), NYSE:USO, NYSE:SLV, NYSE:USO
The Overall Fundamentals
The World's financial markets changed some Friday as protests
in Egypt escalated. Equities fell while safe-haven assets
including the USD, bonds and Gold rose on risk aversion
Crude Oil prices rebounded strongly as players worried that
protests will spread in the Middle East, affecting Oil shipments
from the OPEC.
With the exception of agricultural products, commodities
generally traded choppily on the week. While the US Fed pledged
its accommodative monetary stance and macro-economic data
continued to show improvements, potential tightening in emerging
countries, especially China and India, raised worries about
The unrest in Egypt followed an uprising in Tunisia 2 weeks
ago. The chaos in Tunisia was driven by people's anger over rise
in food prices, high unemployment rate and corruption. These
problems have also been shared by people in Egypt for many years.
Protests in Cairo, Alexandria, Suez and many other cities in the
country have caused casualties, and President Hosni Mubarak to
appoint a new government. Egypt is the most populous Arab state
and the market worries that protests in Egypt, if spread to other
Arab countries, will have huge impacts to the World.
China and India are the 2 biggest commodity demand drivers.
Inflationary pressures have triggered the needs of monetary
tightening. India's central bank raised the benchmark interest
rate to 5.5%, the highest level in 2 yrs on January 25. China is
silent in interest rates since the beginning of the year, the
market is now focused what will happen during and after Chinese
New Year, as the State Council announced measures to curb
property price hikes last week, showing the government's
commitment to temper asset bubbles.
Last week the US Fed's pledged to leave interest rates at Zero
levels for an extended period of time. The ECB will be meeting
for monetary decisions next week.
LTN's analysts expect policymakers to level the main
refinancing rate unchanged at 1%. Comments from President Trichet
and other ECB members about inflation spurred rate hike
speculations and lifted the Euro vs the USD last week.
Gold and Silver
The +1.7% rebound Friday narrowed Gold's recent decline, the
metal's near-term outlook remains wobbly. Investment demands have
been easing as macro economic environment improve.
There were sizable redemptions of shares in the largest gold
ETF, and declines in net length in Comex futures last week.
Holdings in SPDR Gold Trust contracted -1.53M oz, to -3.75%,
to 39.36M oz last week. This was the biggest 1-week drop since
September 12 2008.
Open interest in Comex Gold futures fell to 491,222 contracts
as of January 26, 2011. Open interest reached a record high of
650,764 contracts on November 9, 2010.
Gold price has dropped almost 6% over the past 4 weeks,
setting the beginning of Y 2011 with a weak tone.
As Gold's correction was deeper than many expected, there have
been talks about structural change Gold's up-trend for some time
as the momentum slowed.
As Global economic outlook turns more encouraging, and
confidence improves in US and European markets, speculation about
less QE are being voiced, and as the market gets better,
investors seek higher risks and high yields. These resulted in
declines in Gold ETF holdings in recent weeks.
Despite some near-term Bearishness, I am still inclined to be
optimistic on the precious Yellow metal's long term outlook.
Deficits remain a major problem in advanced economies, fiscal
tightening to reduce debts will dampen growth and therefore,
accommodative monetary policy will stay for a good long time to
stimulate the economy.
Gold, after a healthy correction, will resume its up-trend
later this year as demands for safe-haven, inflation-hedge and
store of value return.
Silver declined sharply yet with no 4 hour closing below
26.50, confirming the possible Bullish pattern. Stochastic
provided a positive crossover and RSI provided a Bullish reversal
and therefore I will keep my positive expectations, and see the
possibility for silver to move higher.
The trading range for Friday was at the Key support at 25.35
and the key resistance at 28.05.
The general trend over short term basis is to the Southside
targeting 23.60 as far as areas of 30.80 says intact with weekly
The widening in WTI-Brent spread was notable last week, as the
Brent Crude Oil price continued to hang around 100,
WTI Crude weakened to below 90 and de-coupled from other
International and regional benchmarks.
WTI's discount to Brent rose to 11.75, a level not seen since
January 2009. Brent prices have gained support from seasonal
maintenance in Southern Europe while WTI was pressured by huge
Total Crude Oil and petroleum products stocks rose for a 3rd
consecutive week, by +2.40 mmb to 1069.4 mmb in the week ended
January 21, according to the US DOE/EIA.
Crude Oil inventory rose +4.84 mmb to 340.6 mmb. This was the
2nd consecutive weekly increase in crude inventory.
Increases in stockpiles were noted in all PAD districts except
for the West Coast. Gulf Coast continued to see huge stock builds
(up +5.90 mmb) during the week. Utilization rate dropped -1.2% to
81.8%, the lowest level since late October 2010.
Nat Gas price declined last week. After a less-than-expected
draw in weekly inventory, the EIA reported higher Gas production
Thursday, the EIA reported a -174 bcf draw in Gas inventory
but later resubmitted a +10 bcf revision.
Therefore, Gas storage should have dropped -164 bcf to 2552 bcf
in the week ended January 21.
Gas price initially climbed higher but then fell after the
revised data was reviewed, showing a -164 bcf drop was below
consensus of a -168 bcf fall.
Then Friday, the Department said lower 48 states production
increased +0.71 bcf/day, or +1.1%, to 66.52 bcf/day in November
as driven by large gains in Louisiana, Texas, and other
The gains were partly offset production drop from the Federal
Offshore Gulf of Mexico. Meanwhile, gross Gas production climbed
to76.05 bcf/day from a revised 75.25 bcf/day in October of the
gross Gas production in the lower 48 states and Alaska.
Separately, the number of Gas specific drilling rigs increased
for the 2nd straight week, by +7 units, to 913 units in the week
ended January 28.