The Overall Fundamentals  

Precious Metals  

Despite a rebound and easing speculations, Gold's gains were pared after US Fed Chairman Ben Bernanke downplayed QE-3 hopes in a testimony before the US Congress last week.   Let's move forward: Gold price is expected to continue to be influenced by Fed's or speculation of Fed's additional easing.   Note that US Crude Oil demand is a leading indicator of its employment level. As Crude Oil demand has seen a downtrend, it implies that payroll addition would be weak, thus raising the likelihood for further easing from the US Fed. This is Bullish for Gold in the longer-term IMO.  

Crude Oil

Although the front-month contracts for WTI and Brent Crude il gained more than +1% last week, the volatility of both benchmarks was high due to policy risks; investors are concerned that policymakers were unable to contain the Eurozone sovereign debt crisis which has spread from Greece to Spain, and to boost growth as data from both the US and China has weakened considerbly.

In the coming weeks sanctions on Iran will come into effect. The US sanctions approved by US President Obama at the end of Y 2011 will be effective at the end of June.

The US is imposing penalties on its trading partners who import Crude Oil from Iran.

Countries can be granted a waiver if they promise to lower their purchases Crude O from Iran significantly, i.e. around 20%.

Currently, Japan is the only non-EU members that has been granted a waiver, while countries such as South Korea, Turkey, India, Taiwan, Sri Lanka and South Africa have all lowered or have promised to cut their imports from Iran and are seeking waivers.

The EU sanctions will be effective on July 1.

When the embargo comes into effect, EU countries' Crude Oil imports of 600-K BPD will be forbidden, and EU insurers will be prohibited from providing coverage to Oil tankers that carry Iranian Crude Oil after 1 July.

Prohibition of Oil tanker insurance does not only affect EU Crude Oil imports, but also from all over the World, given the fact that around 90% of the World's tankers are insured via insurance pools or use reinsurance from EU companies.

While the US and EU sanctions are expected to tighten the demand/supply balance, it will probably be eased by the US release of SPR, thus mitigating upside pressure on Crude Oil prices.

Natural Gas

Nat Gas declined for a 3rd week running. The DOE-EIA reported that Nat Gas inventory increased +62 bcf to 2 877 bcf in the week ended 1 June. Stocks were +713 bcf above the same period last year and +687 bcf, or +31.4%, above the 5-yr average of 2.090 bcf.

Rig Count

Baker Hughes reported that the number of Nat Gas rigs dropped -23 units to 565 in the week ended 8 June. Oil rigs increased +28 units to 1 414 and miscellaneous rigs fell -1 units to 5 and the total number of rigs was up +4 units to 1 984 units. Directionally oriented combined oil, gas, and miscellaneous rigs added +18 units to 235 while horizontal rigs decreased -6 units to 1 177 and vertical rigs slipped -8 units to 572 during the week.

  The Overall Technicals

Comex Gold (GC)

Gold's rebound was limited at 1642.4 last week, and weakened sharply after tapping that mark. Price actions from 1526.7 to 1642.4 should be a 3 wave correction pattern that has completed. So, a deeper decline is favored ahead through 1526.7 to 1500 psych mark. I will be looking for reversal signals again below 1500.

On the upside: a move above 1642.4 will invalidate this Bearish POV, and signal that fall from 1792.7 has completed. In that case, a stronger rebound should be seen to 1700, and above.

The Big Picture: price actions form 1923.7, the high, are seen as a medium term consolidation pattern. There is no indication that such consolidation has finished, and more range trading could be seen. In any case, the Southside of any falling leg should be contained by 1478.3/1577.4, the support zone, and bring on a rebound. A clear break of 1792.7, the Key resistance, is needed as the 1st signal of the up-trend's resumption. Barring that, the consolidation should extend further.

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

Comex Gold Continuous Contract Daily Chart


Comex Silver (SI)

Silver's rebound was limited to 29.865 last week, that is below the 38.2% fibo retracement of 37.48 to 26.73 at 30.83 and weakened sharply since. Consolidation from 26.73 could have completed at 29.865, and initial bias is mildly on the Southside for a move to 26.145/73, the support zone. A clear break there confirms resumption of whole decline from 37.48. A break above 29.865 will delay the Bearish case, and bring another recovery. But I am staying Bearish as long as 30.83 fibo mark holds.

The Big Picture: price actions from 26.15 should be viewed as a consolidation pattern only, and has completed with 3 waves to 37.48. Fall from there is tentatively treated as resumption of the medium term decline from 49.82 high and should extend through 26.145 to 61.8% fibo retracement of 8.4 to 49.82 at 24.22 and below. Though, break of 30, the psych mark, raises  the chance of 1 more rising leg before consolidation from 26.15 finishes.

The Long Term Picture: the Big Q remains, is 49.82 is a medium term or long term Top? What my work shows now favors the latter. I would like to see a sustained break of 61.8% fibo retracement of 8.4 to 49.82 at 24.22 to confirm this. Barring that, price actions from 49.82 could merely be developing into a sideway pattern. Stay tuned...

Comex Silver Continuous Contract Daily Chart


Nymex Crude Oil (CL)

Crude Oil turned into sideway consolidation after edging lower to 81.21 initially. Recovery was limited by 4 hours 55 EMA but there was no follow through selling. My initial bias is Neutral this week and likely will see more consolidative trading ahead. A break above 87.03 brings another rise, but any Northside should be limited by 92.21, the Key resistance and bring a fall resumption. A break below 81.21 will drive Crude Oil through 80, the psych mark, to test 74.95, Key support IMO.

The Big Picture: price actions from 114.84 are developing into a 3 wave consolidation pattern, the 3rd leg should have already started at 110.55. Deeper fall should be seen to test 74.95 low and possibly lower. If so we should see strong support from 64.23, the cluster zone, 61.8% fibo retracement of 33.20 to 114.83 at 64.38 and bring another medium term rise, it that happens I will look for a reversal signal below 74.95.

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 to bring reversal for the 3rd leg of the consolidation pattern. Stay tuned...

Nymex Crude Oil Continuous Contract Daily Chart


Paul A. Ebeling, Jnr.

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.