The Overall Fundamentals Precious Metals Gold's price continued to fluctuate around the 1600 mark, with disappointments of the US Fed and the ECB being the major drivers of the decline. Gold was the only metal in the complex that recorded weekly fall last week. But, I do expect the up-trend to continue.
Friday's rally has saved Crude Oil prices from recording losses for a 2nd week running. Concerning front-month contracts, WTI Crude Oil gained +1.41%, Brent Crude finished +2.32%.
After a brief fall to contango in June, ICE Brent Crude returned to backwardation in July and the spread has been widening in recent days. The Key reasons for the situation are sanctions on Iran and potential decline in supply of Forties (the available barrels of North Sea Forties blend Crude Oil, the largest component of benchmark Brent Crude as a result of an export program in September).
Strength in Crude Oil prices was helped by the US' and its allies' sanctions on Iran's oil exports, the data shows that Iran's shipment has dropped -1.2M BPD since the EU sanctions became effective on 1 July. This represents about 50% of the original output of the Middle East country.
In coming months, the situation will likely tighten as the US intensified sanctions by penalizing foreign banks that handle transactions for National Iranian Oil Company (NIOC) or its subsidiary Naftiran Intertrade Company.
The US has now placed sanctions on China's Bank of Kunlun and Iraq's Elaf Islamic Bank.
Note: the Bank of Kunlun is a regional bank in western Xinjiang province with 82% held by CNPC, this round of sanctions would further limit China's ability to buy Crude Oil from Iran.
The Brent Crude contract is based on 4 North Sea Crude Oils - Brent, Forties, Oseberg and Ekofisk.
While Forties is the largest stream and the most important Crude Oil for setting prices, its supply is expected to decline as Nexen (NYSE:PB) has planned to close Buzzard for maintenance, the largest field with over 70% Crude Oil feed to Forties
Nymex Nat Gas price fell on Thursday due to the broad-based selloff in financial markets after the ECB's disappointment. The decline was also driven by the increase in supply of +28 bcf to 3 217 bcf in the US in the week ended 27 July. Stocks were +472 bcf higher than last year at this time and +407 bcf above the 5-year average of 2 810 bcf. While Nat Gas price will likely report losses for the 2nd consecutive week, it has risen more than +50% from the lowest point in April. That is attributable to the rally for 2 Key reasons: Coal-to-Gas replacement and hot weather. In Q-1 of Y 2012, market fears that oversupply in Nat Gas would fill storage earlier than usual sent prices South. As a result, Nymex Nat Gas price plummeted to a 10 yr low in April. Selloff in Nat Gas prices has attracted demand from power generators with the power sector chose to run Nat Gas-fired plants instead of Coal-burning ones due to lower costs. This kind of demand for Nat Gas is highly dependent on low Nat Gas prices. Already some plants have already switched back to Coal with recent rally in Nat Gas prices.
Power consumption has also been support by hotter-than-normal weather in the US this Summer. This factor will continue to help in August and as long as the weather is "Hot enough", robust demand would sustain current price levels. However, as Winter comes, I believe price will falter and probably slip back to $2.00 range.
The Overall Technicals
Comex Gold (GC)
Gold failed to hold above 1625.7, the resistance, and subsequent break of 1600.8 minor support indicates that recent sideway trading from 1526.7 is still in on.
On the Downside: a break below 1562 favors a Southside breakout to below 1526.7. But, strong support should be seen around 1500, the psych mark to contain any downside. And , a break of 1628 will be another sign of Northside breakout and break of 1642.4 should send Gold through 1700, the overhead psych mark.
The Big Picture: price actions from 1923.7, the hig,h are viewed as a medium term consolidation pattern. There is no indication that this consolidation is finished, and more range trading could be seen. The downside of any falling leg should be contained by 1478.3/1577.4 Support Zone and bring on a rebound, and a break of 1792.7, the Key resistance, is needed to be the 1st signal of up-trend resumption. Barring that, the consolidation will extend.
The Long Term Picture: with 1478.3, the Key support intact, there is no change in the long term Bullish outlook for Gold, but , spme more medium term consolidation cannot be ruled out, and I anticipate an eventual break of 2000, the psych mark, in the long run. Stay tuned...
Comex Gold Continuous Contract Daily Chart
Comex Silver (SI)
Silver's sideway trading continued last week and it has not found a commitment for a breakout yet, and more consolidative trading could be seen in near term.
On the Downside: a clear break of 26.07 confirms resumption of whole decline from 37.48, and should target next long term fibo mark at 24.22.
On the Upside: a break above 28.445 will bring on another rally to 29.856, the Key resistance, instead.
The Big Picture: Silver price actions from 26.15 should only be a consolidation pattern. In here I am slightly favoring the case that such consolidation finished at 37.48. And, fall from 37.48 should extend to 61.8% fibo retracement of 8.4 to 49.82 at 24.22 and below. But, a break of 29.856 suggests 1 more rising leg before consolidation from 26.15 finishes.
The Long Term Picture: the Big Q remains on whether 49.82 is a medium term or long term top, this current development favors the latter. I prefer to see sustained break of 61.8% fibo retracement of 8.4 to 49.82 and then fall to 24.22 to confirm. Barring that, the price actions from 49.82 may just be developing into a sideway pattern. Stay tuned...
Comex Silver Continuous Contract Daily Chart
Nymex Crude Oil (CL)
Crude Oil rebounded late last week, but upside is still limited to below 92.94, the short term top.
Initial bias remains Neutral and more consolidation cannot be ruled out. But, even in case of another decline, near term outlook remains Bullish as long as 83.65 support holds. As I noted before, the decline from 110.55 should have finished at 77.28. This rebound should extend and break of 92.94 will target 61.8% fibo retracement at 97.84 and above.
The Big Picture: the price actions from 114.84 are viewed as a 3 wave consolidation pattern with the fall from 110.55 as the 3rd leg. Such a decline may have finished earlier than we expected at 77.28. Sustained trading above 90, the psych mark, will bring stronger rally towards 114.83, the Key resistance. And a break there will resumption whole up-trend from 33.2.
On the Downside: another fall cannot be ruled out, but even in that case, strong support should be seen below 74.95 and above 61.8% fibo retracement of 33.20, and bring another medium term rise.
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 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 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.