Red's Weekly Focus on Precious Metals and Energy Trading


 
 
The Overall Fundamentals
 
Geopolitics took the center stage in the commodity sector last week, and improvement in macro-economic data and the approval of the new bailout package for Greece impacted market sentiment.
 
Iran's move to halt Crude Oil exports to the UK and France fueled worries about disruption of Crude Oil supply to EU countries although the real demand of Iranian Crude Oil from these 2 countries was limited.
 
Brent Crude Oil price rose to the highest level in 9 months. The front month contract rallied to a new record in EUR terms and close to a record in GBP term. As Crude Oil prices get more expensive, market concerns about the impacts on World economic recovery should come on real soon IMO.
 
The G-20 Summit over the weekend focused on the sovereign crisis in the EuroZone. While countries like Japan, China and Brazil pledged to support the IMF in its fund raising plan to resolve the debt problems in the 17-nation region, World leaders pressured the EuroZone countries to make more efforts in deficit reduction and economic recovery.

Gold gained last week with the benchmark Comex contract rising to a 3 month high at 1789.5 before ending the week at 1776.4, up +2.93%.

The precious metal complex saw Silver and Platinum outperform. Investors should be cautious about the impact of rising Crude Oil prices on US economic activities as this would affect the outlook of Silver and PGMs as they have strong industrial characteristics, meaning that Silver is sensitive to trends in US manufacturing activities while PGMs prices are affected by car sales.

As I said above, rising Crude Oil prices can derail the recovery of the US employment market. A subdued job market would in turn affect auto sales and thus PGM demand.

Crude Oil prices rallied last week with the prompt-month contract for Brent Crude gaining +6.33% and the equivalent WTI Crude contract adding +4.93%.

Year to date, Brent in USD's has risen +4.8% from Q-4 Y 2011 and +8.1% from Q-1 Y 2011. The rally was more significant when priced in the EUR and GBP.

I wish to point out that rising Crude Oil prices can have negative impacts on the European economic recovery (as well as the US recovery). Although rising Crude Oil prices have a smaller impact on the total cost of fuel in the EU than elsewhere because of high taxes and direct fuel costs represents only a small part of inflation, the impacts can still be high as Brent Crude in EUR terms has reached a record 93.60 Euro last week, exceeding the previous high of 93.46 Euro in July 2008, the heart of  the financial crisis.

The rise in Crude Oil prices has damaging effects on US growth. US' Crude Oil demand growth is leading US' job growth by around 1 yr, a negative growth in oil demand suggests that the Nation's job market cannot expand.

Nat Gas prices fell after a week's rebound. The DOE-EIA reported that Nat Gas inventory dropped -166 bcf to 2 595 bcf in the week ended 17 February. Stocks were +753 bcf above the same period last year and +744 bcf, or +40.2%, above the 5-yr average of 1 851 bcf.

Baker Hughes reported that the number of Nat Gas rigs fell -6 units to 710 in the week ended February 24. Oil rigs fell -7 bcf to 1 265 units and miscellaneous rigs stayed unchanged at 6, sending the total number of rigs to 1 981 units. Directionally oriented combined Cil, Gas, and Miscellaneous rigs fell -4 units to 210 while horizontal rigs increased +2 units to 1 165 and vertical rigs fell -11 units to 606 during the week.

The Overall Technicals
Comex Gold (GC)

Gold's rally resumed last week by taking out 1765.9, and hit 1789.5. From a near term POV, more movement North is in favor as long as 1706.4, the Key support holds, and my target is on 1804.4 the Key resistance.

A clear break there has medium term Bullish implications. But, a reversal from the current level, followed by break of 1706.4 suggests that rise from 1523.9 has finished, and will turn near term outlook Bearish for retesting this the Key support.

The Big Picture: The Gold price actions from 1923.7, the high are seen as a medium term consolidation pattern. So, the focus is on 1804.4, the Key resistance. A break there will be the 1stsignal of long term up trend resumption and should bring rally back to 1923.7, the high. In case of another fall, I continue to expect Strong support from 1478.3/1577.4, the support Zone to contain any Southside and finish the consolidation and bring on up-trend resumption sooner or later.

The Long Term Picture: with the 1478.3, Key support intact, there is no change in my  long term Bullish outlook on Gold. While some more medium term consolidation cannot be ruled out, I look for an eventual break of 2000, the psych mark, in the long run. Stay tuned...

Comex Gold Continuous Contract Weekly Chart


Comex Silver (SI)

Silver's rally resumed last week and took out 34.52, tapping 35.72. The 35.70 resistance was cracked, but Silver did stay above this level. A extension of the rally is expected as long as 32.64, the Ke support holds.

A clear break of 35.70 signals a medium term Bullish stance, and should send silver to 61.8% projection of 26.145 to 34.52 from 32.64 at 37.81 first. But, a failure at the current level, followed by break of 32.64, will indicate short term Topping and turn outlook Bearish for a test on 26.145 next.

The Big Picture: my focus remains on resistance at 35.70. A clear break there signals that the correction pattern from 49.82 high has completed with a Double Bottom reversal pattern, 26.15, 26.145. If that is the case, a stronger rally should be seen to 40, the psych mark, and above. But, a break of 32.64 augurs that correction from 49.82 is not completed and will extend to 24.22 fibo level.

The Long Term Picture: the Big Q remains, if 49.82 is a medium term or long term Top? The current action is starting to favor the latter. I would however, prefer to see sustained break of 61.8% retracement of 8.4 to 49.82 at 24.22 to confirm. Barring that the price actions from 49.82 could be developing into a sideway pattern. Stay tuned...

Comex Silver Continuous Contract Weekly Chart

Nymex Crude Oil (CL)

Crude Oil's rally extended last week as I expected and tapped 109.95.

My initial bias remains on the Northside this week, and this rise should target a test of 114.83, the Key resistance next.

On the Downside: a break below 107.95, the minor support, will turn the bias to Neutral, and bring consolidations 1st before staging another rally.

The Big Picture: the medium term up-trend from 33.2 should not be completed. The rise from 74.95 is now treated as resumption of the rally. A clear break of 114.83 targets 61.8% projection of 33.2 to 114.83 from 74.95 at 125.40.

On the Downside: a clear break of 95.44, the Key support, augurs that the correction pattern from 114.83 is going to extend further with another falling leg to 74.95 and below before finishing.

The Long Term Picture: Crude Oil is in a long term consolidation pattern from 147.27, with the 1st wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it is the 2nd wave of the consolidation pattern. While Crude Oil could make another high above 114.83, I anticipate Strong resistance ahead of 147.24 to bring reversal for the 3rd leg of the consolidation pattern. Stay tuned...

Nymex Crude Oil Continuous Contract Weekly Chart



Nymex Natural Gas (NG)

Nat Gas was locked in a range below 2.733 last week, and lacked another round of buying to push it higher.

The overall outlook remains unchanged from my POV. Consolidation from 2.231, the low, is still in progress and more choppy sideway trading will likely be seen in near term. In case of another rise the upside is expected to be limited by 3.12 Cluster Resistance; 61.8% retracement of 3.689 to 2.231 at 3.132.

On the Downside: a break below 2.483 will bring on a retest of 2.231 1st. A clear break there confirms the fall's resumption for 2.130 projection level next.

The Big Picture: the whole down-trend from 13.694, the Y 2008 high, has resumed with break of 2.409, the Key support mark. Current decline targets 100% projection of 6.108 to 3.255 from 4.983 at 2.130 or even lower to 2.0, the psych mark. A clear break of 3.255, the support turned resistance, is needed to be the 1st sign of a reversal, or I am staying Bearish Nat Gas.

The Long Term Picture: the break of 2.409 says that the down-trend from 15.78 is in progress, and will now possibly extend to the Y 2002 low of 1.96 and below. Stay tuned...

Nymex Natural Gas Continuous Contract Weekly Chart




Charts by: eSignal.com