The Overall Fundamentals Precious Metals

According to thee latest report from the World Gold Council, demand for Gold fell to 999 metric tons in Q-2 of Y 2012, down more than -7% from the same period last year and -10% from Q-1. During Q-2, Gold price moved largest sideways within the range of 1500 and 1700. The lack of direction in price sent mixed signals to investment, leading to mildly net outflow of ETF and similar investment during the period. Geographically, China and India are still the largest consumer of the metal, accounting for 45% of jewelry and bar and coin demand. China, currently the world's largest Gold consumer, recorded a +6% gain in demand for jewelry and bar and coin, while India's consumption fell -33% during the period. The Key reason for the drop in Indian demand was mainly weakness in Rupee against the USD. Note: India's consumption fell 33% in terms of quantity, the decline was only -19% in terms of value. Although the contraction in Gold demand was broadly based, official purchases were particularly strong, rising +138% annually and +63% quarterly. The number of central banks, especially those from emerging markets, are still adding Gold to their reserves so as to diversify away from holdings of the USD. An Example: the National Bank of Kazakhstan announced in July that it would increase its Gold purchases to 26 metric tons from 24.5 metric tons this year, targeting to raise its Gold holdings to 15% of the foreign exchange reserve. During Q-2, the country added +5.4 metric tons in its reserve. The Russian central bank also bought 22.3 metric tons of Gold during Q-2 with the amount of Gold staying at 9% of total reserve. Few central banks sold their Gold holdings in Q-2. The only exception was Germany which disposed -0.7 metric tons of the precious Yellow metal. This does not mean that European central banks are beginning to sell Gold. The reverse is true, take a look at the report of the Third Central Bank Gold Agreement (CBGA3). Total Gold sales by European central banks were so far only 5.9 tons in the 3rd year (September 27, 2011-September 26, 2012) of the agreement, down markedly from 53.3 metric tons in the prior year. Sales limit agreed on in CBGA 3 were 400 metric tons.

Crude Oil

Crude Oil prices were strong last week with both benchmarks rising to the highest marks in 3 months.

Brent Crude Oil prices rose last week with the September contract expiring at 116.9 bbl, the highest close since early May. Closing at 94.63 bbl in EUR terms, price is less than 2 Euro below the all time high of 96.48 bbl EUR.

October Brent erased gains Friday on news that the White House might release strategic Crude Oil stocks. Recent factors driving Crude Oil prices remained intact.

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.

Geopolitical tensions in the Middle East also drove prices higher.

Saudi Aramco, Saudi Arabia's national Oil company, has been hit by a cyber attack. The company stated that "on Wednesday, 15 August 2012, an official at Saudi Aramco confirmed that the company has isolated all its electronic systems from outside access as an early precautionary measure that was taken following a sudden disruption that affected some of the sectors of its electronic network. The disruption was suspected to be the result of a virus that had infected personal workstations without affecting the primary components of the network".

Although the attack would have not much impact on the company's Crude Oil production, investors are going to pay close to the incident as geopolitical tensions loom in the region.

Natural Gas

According to the DOE/EIA, Nat Gas storage increased +20 bcf to 3261 bcf in the week ended 10 August. Stocks were +442 bcf higher than the same period last year and +363 bcf above the 5-yr average of 2 898 bcf.

US Rig Count: Baker Hughes reported that the number of gas rigs dropped -11 units to 484 in the week ended August 16. Oil rigs fell -7 units to 1 425 and miscellaneous rigs climbed +1 unit to 5 and the total number of rigs was down -17 units to 1 914 units. Directionally oriented combined oil, gas, and miscellaneous rigs added +2 units to 229 units while horizontal rigs decreased -8 units to 1 153 and vertical rigs slid -11 units to 532 during the week.

The Overall Technicals

Comex Gold (GC)

There is no change in Gold's Neutral outlook as it continued to trade inside recent converging range.

On the upside: a clear break of 1642.4 resistance will confirm breakout, and should show the way to 1700 psych mark and above.

On the downside: a break of 1562.0 will indicate downside breakout but in that case, I anticipate strong support at around 1500 psych mark, to contain any Southside action.

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, and more range trading could be seen. In any case, downside of any falling leg should be contained by 1478.3/1577.4 Support Zone, and bring on a rebound. But, break of 1792.7, the Key resistance, is needed to be the 1st signal of up-trend resumption. Barring that, the consolidation is expected to extend.

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

Comex Gold Continuous Contract Daily Chart


Comex Silver (SI)

Silver continued to trade inside recent converging range. More consolidative trading could be seen in near term IMO.

On the downside: a break of 26.07 will confirm resumption of whole decline from 37.48 and should target next long term fibo level at 24.22.

On the upside: a break above 28.445 will bring on a rally to 29.856 resistance I believe.

The Big Picture: the price actions from 26.15 should be a consolidation pattern only. At this point, I am slightly favoring the case that such consolidation is finished at 37.48. And, fall from 37.48 should extend to 61.8% retracement of 8.4 to 49.82 at 24.22 and below. But, a break of 29.856 will suggest one more rising leg before consolidation from 26.15 completes.

The Long Term Picture: the main question remains on whether 49.82 is a medium term or long term top. Current development is favoring the latter. As I have said before, I want 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 Daily Chart


Nymex Crude Oil (CL)

Crude Oil's rally continued last week and reached 96.28. The rally is expected to continue to 61.8% retracement of 110.55 to 77.28 at 97.84.

Note: that rise from 77.28 could be the 4th leg inside the triangle patter from 114.83. So, be cautious for a topping between 100 and 110.

On the downside: a break below 92.68, the minor support, is needed to indicate short term topping. Barring that, I will stay Bullish even in case of retreat.

The Big Picture: price actions from 114.83 are viewed either a 3 wave consolidation pattern that has completed at 77.28, or a 5 wave triangle pattern that is still unfolding. A break of 110.55, the Key resistance, will strongly suggest that whole rebound from 33.29 has resumed for a move above 114.83. While another fall could be seen before an eventual upside breakout, downside should be contained above 77.28 support mark..

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 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 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.