The Overall Fundamentals

LTN Asia's leading source of economic research take a look at the commodities market this week.
Precious Metals

Gold rebounded for the 1st time in 4 days Friday as weak US employment data pressures the Greenback. But, the precious Yellow metal has been trading in a range of around 1650 for more than a month.

This trading pattern has been inline with that of the Euro which has been range-bounded since the beginning of February.

It is believed that official sector buying has been supporting prices as futures and ETF demand have dropped recently. Physical demand also softened as China and Japan were on public holiday and despite India's Gold festival.


WTI Crude Oil began its decline in the mid-week and picked up the pace Thursday as the OPEC predicted that Crude Oil supply will exceed demand this year and beyond.

The cartel indicated that current levels of Crude Oil prices were too high, as driven by speculation.

The OPEC's secretariat general, Abdullah al-Badri, stated that There has been no shortage of Crude Oil in the market. Producers have been able to meet consumer needs. The OPEC also sees this as being the case for the rest of Y 2012 and the foreseeable future. He also added that today the price continues to be driven by excessive speculation. This triggered the sell-off which was then exacerbated by the disappointing US payroll data.

Nat Gas rose for a 2nd week running, signaling a temporary bottom formed 1.902 in mid-April. The DOE/EIA reported that Nat Gas inventory increased +28 bcf to 2 576 bcf in the week ended 27 April.

Stocks were +840 bcf above the same period last year and +857 bcf, or +49.8%, above the 5-yr average of 1719 bcf.

Baker Hughes reported that the number of Nat Gas rigs fell -7 units to 606 in the week ended 4 May. Oil rigs increased +27 units to 1 355 and miscellaneous rigs stayed unchanged at 4 units, sending the total number of rigs to 1 965 units. Directionally oriented combined oil, gas, and miscellaneous rigs slid -9 units to 234 while horizontal rigs increased +19 units to 1 158 and vertical rigs added +10 units to 573 during the week.

The Overall Technicals
Comex Gold (GC)

Gold's rebound was limited at 1672.3 and then fell to as low as 1626.8. There is no change in POV that price actions from 1613 are unfolding as a consolidation pattern.

A Triangle is the likely scenario, and more choppy sideway trading could be seen in side the converging range of 1613/1681.3.

Stronger rebound is not likely, but even in case of a break of 1672.3, there is strong resistance from 50% retracement of 1792.7 to 1613 at 1702.9 to limit upside, and eventually a Southside breakout is anticipated and a move below 1613 will extend the fall from 1792.7 towards 1523.9 low.

The Big Picture, the price actions form 1923.7 high are seen as a medium term consolidation pattern. Fall from 1792.7 is viewed as 1 of the falling leg inside the pattern and should head back to 1478.3/1577.4 support Zone. I expect strong support from 1478.3/1577.4, the support Zone to contain the Southside to finish the consolidation and bring up trend resumption to another high above 1923.7 sooner or later.

On the Upside: a clear break of 1702.9, the fibo resistance, will augur that fall from 1792.7 is finished and turn focus back to this resistance instead.

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

Comex Silver (SI)

Silver's decline continued last week and reached 29.78. The near term outlook is Bearish as long as 31.395 resistance holds. Sustained trading below 30, the psych mark, should show the way to 26.145 and lower.

The Big Picture: the price actions from 26.15 should be a consolidation pattern only and completed with 3 waves to 37.48. The 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% retracement of 8.4 to 49.82 at 24.22 and below. But a clear break of 31.395, the resistance, will dampen this POV and turn focus back to 37.48.

The Long Term Picture: the Big Q remains on whether 49.82 is a medium term or long term top. Current development favors the latter. I would prefer to see sustained break of 61.8% retracement of 8.4 to 49.82 at 24.22 to confirm that case. Barring that, price actions from 49.82 could merely be developing into a sideways pattern. Stay tuned...

Nymex Crude Oil (CL)

Crude Oil's recovery was limited at 105.98 and subsequent sharp decline drove it through 100.68, the Key support, confirming resumption of the fall from 110.55.

A deeper decline is expected in the near term to 92.52, the support, that is near the 50% retracement of 74.95 to 100.55 at 92.75. Some support might be seen 61.8% retracement at 88.55 to bring consolidation, we will see.

The Big Picture: last week's sharp decline affirms the POV that the price actions from 114.84 are developing into a 3 wave consolidation pattern, the 3rd leg should have already started at 110.55. Deep fall should eventually be seen to 74.95 low and possibly lowere. There will likely be strong support from 64.23 cluster level, 61.8% retracement of 33.20 to 114.83 at 64.23 and bring another rise. I will be looking for reversal signal below 74.95.

The Long Term Picture: Crude Oil is in a long term consolidation pattern from 147.27, with 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 it could make another high above 114.83, I see strong resistance ahead of 147.24 to bring reversal for the 3rd leg of the consolidation pattern. Stay tuned...

Nymex Natural Gas (NG)

Nat Gas's rebound extend further to as high as 2.385 before turning sideway. Some consolidations could be seen in near term 1st. Any Southside of retreat should be contained by 2.15, the minor support, and bring on another rise. A move above 2.385 should extend the rebound from 1.902 to 2.742 resistance and above. But a move below 2.150 will turn bias back to the Southside for retesting 1.902 low.

The Big Picture: the Bullish convergence condition in daily MACD suggests that fall from 4.983 is completed at 1.902 and stronger rebound will be seen. The rebound could reach as high as 38.2% retracement of 4.983 to 1.902 at 3.079. I will have to see sustained break of 3.255 Support turned Resistance to indicate completion of the down trend from 6.108. Barring that, there could be another low below 1.902 eventually.

The Long Term Picture: the whole down trend from 13.694, the Y 2008 high, remains in progress, so is that from 15.78, the Y 2005 high. Monthly MACD's stay below Signal Line suggest that Southside momentum is increasing. The Y 2002 low of 1.96 is breached and some rebound should be seen, but another down trend extension will push Nat Gas to 1999 low of 1.62. Stay tuned...

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.