The Overall Fundamentals Precious Metals

Gold's price continued to struggle trading above 1600 last week. The lack new catalysts to drive the Precious Yellow metal higher in the near-term seems to be the cause, as both the US Fed and the ECB did not announce new quantitative easing (QE) measures.

Most analysts and players expect Gold will rise if central banks add new stimuli. But, if central banks continue to remain silent, Gold's floor will need supports from physical demand in the coming months.

The festival season in India starts in October, during the main festivals; Navaratri, Diwali and Dussehra, demand for Gold is expected to climb. But, the rise in Gold purchases this year may not be as strong as previously due to concerns over the monsoon rains, and continued weakness in the Indian Rupee.

Crude Oil

Crude Oil prices gained for a 2nd week running as investors temporarily ignored the ongoing sovereign debt crisis in the Eurozone and focused on fundamentals.

During the week, the front-month WTI contract added +1.61%, and the equivalent Brent contract rose +3.68%, the spread between Brent and WTI crude widened last week to a level not seen since May 2012, the time-spread of the former also became increasingly "backwarded".

The Key reasons for the strength in Brent Crude Oil prices remained North Sea supply shortage and growing instability in the Middle East, especially Iran's supply disruption and the unrest in Syria.

Despite the IEA's downward revision in global Crude Oil demand, lower consumption outlook is offset by tightening in supply. As I mentioned in last weeks report, production of Forties, the largest North Sea Stream, will face disruption due to extended maintenance of the Buzzard field. Production of the field will be suspended from early September until mid- October.

The geo-political situation in the Middle East is getting more unstable. Violence in Iraq, attacks on pipelines in Turkey, turbulence in Syria as well as intensification of sanctions over Iran have raised concerns over output shortage from these countries.

Note:  sanctions from the US and European Crude Oil embargo against Iran have turned out to be more "successful" than expected. Due to the embargo started in 1 July, Iran's Crude Oil production has fallen to the lowest level in 22 yrs. Crude Oil production July fell to 2.9-M BPD from 3.4-M BPD in the beginning of the year and 3.6-M BPD in Y 2011. According to the IEA, Iran's Crude Oil production will decline to 2.6-M BPD by year-end.

Unconventional monetary easing by the US Fed and the ECB may provide further supports to Crude Oil prices in coming months.

Commodity prices have benefited from QE measures by central banks in the past. We here at LTN look for another round of price hike in September should the Fed and/or the ECB announce additional asset purchase programs.

Natural Gas

Nymex Nat Gas price fell Friday, sending the benchmark contract -3.72% lower during the week. Mild weather forecast is the Key reason for the decline.

According to the DOE-EIA, Nat Gas stock increased +24 bcf to 3241 bcf in the week ended 3 August. Stocks were +465 bcf higher than the same period last year and 386 bcf above the 5-yr average of 2855 bcf.

Drilling Rig Count: Baker Hughes reported that the number of Nat Gas rigs dropped -3 units to 495 in the week ended 10 August. Oil rigs added +3 units to 1 432 and miscellaneous rigs climbed +1 unit to 4 and the total number of rigs was up +1 unit to 1 931 units. Directionally oriented combined oil, gas, and miscellaneous rigs fell -1 unit to 227 units while horizontal rigs increased +6 units to 1 161 and vertical rigs slid -4 units to 543 during the week

The Overall Technicals

Comex Gold (GC)

Gold edged high to 1629.7 last week and the break of 1628.6 is taken as an early sign of Northside breakout.

Initial bias is cautiously to the upside this week for 1642.4 resistance 1st. A clear break there confirms the breakout, and should show the way to 1700, the psych mark, and higher. I would like to emphasize that the underlying momentum is unconvincing so far and I will remain extremely cautiously in here. A break below 1606.6, the minor support, will dampen the Bullish POV, and bring on more consolidative trading.

The Big Picture: price actions from 1923.7 high are viewed as a medium term consolidation pattern. There is no indication that such consolidation is finished yet, and more range trading could be seen. The downside of any falling leg should be contained by 1478.3/1577.4, the support zone, and bring rebound. A clear break of 1792.7, the Key resistance, is needed to be the 1st signal of the 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, though some more medium term consolidation cannot be ruled out, I anticipate an eventual break of 2000 psych level in the long run. Stay tuned...

Comex Gold Continuous Contract Daily Chart


Comex Silver (SI)

There are no new development in Silver, it continued to trade inside its recent converging range, meaning more consolidative trading could be seen in here.

On the downside: break of 26.07 confirms resumption of the 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 another rally to 29.856, the Key resistance, instead.

The Big Picture: price actions from 26.15 should only be a consolidation pattern. At this point, I am still slightly favoring the case that such consolidation is 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 question remains on whether 49.82 is a medium term or long term top. Again and still, this current action favors the latter. I prefer to see a clear break of the 61.8% fibo retracement of 8.4 to 49.82 at 24.22 to confirm. Barring that, the price actions from 49.82 could just be developing into a sideway pattern. Stay tuned...

Comex Silver Continuous Contract Daily Chart


Nymex Crude Oil (CL)

Crude Oil resumed the rally from 77.28 by taking out 92.94 and reached as high as 94.72 before making a temporary top there.

My initial bias is Neutral this week for some consolidations. But I will stay Bullish as long as 86.92, the support, holds. As I have noted before; decline from 110.55 should have finished at 77.28. And this current rebound should extend, and above 94.72 will target 61.8% fibo retracement of 110.55 to 77.28 at 97.84 and above.

The Big Picture: price actions from 114.84 are viewed as a 3 wave consolidation pattern with fall from 110.55 as the 3rd leg. Such a decline could have finished earlier than we expected at 77.28. Sustained trading above 90, the psych mark, will bring on a stronger rally towards 114.83, the Key resistance, mark. A break there will trigger the resumption of the up-trend from 33.2.

On the downside: another fall cannot be ruled out yet, even so, strong support should be seen below 74.95 and above 61.8% the Fibo retracement of 33.20 to 114.83 at 64.38 and bring another medium term rise.

The Long Term Picture: Crude Oil is in a long term consolidation pattern from 147.27, 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.

Nymex Crude Oil Continuous Contract Daily Chart


Nymex Natural Gas (NG)

Nat Gas' fall from 3.277, the short term top, continued last week after interim recovery.

My initial bias is to the downside this week towards 2.720, the support. A clear break augurs that whole rebound from 1.902 has completed and will focus to channel support, now at 2.58, for confirmation.

On the upside: a clear break of 3.120, the minor resistance, is needed to signal completion of the decline. Barring that, I am staying Bearish even in case of recovery.

The Big Picture: the failure to hold above 3.255, the support turned resistance, did not confirm medium term trend reversal IMO. The whole decline from 6.108 could extend, and a break below 2.168, showing the way to a new low below 1.902. But again, a clear break of 3.255 confirms the trend reversal, and a test of 4.983, the Key resistance mark should be tapped.

The Long Term Picture: so as long as resistance holds at 3.255, the down trend from 13.694, the Y 2008 high is still in progress, so is that from 15.78, Y 2005 high, and another fall could be seen to 1999 low of 1.62 on resumption. But, a clear break of 3.255 will be an important signal of a long term bottoming. Stay tuned...

Nymex Natural Gas 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.