The Overall Fundamentals

The commodity sector firmed last week with precious metals turning in the best performance on high hopes of further monetary easing from the Fed. Gold prices charged North with important near-term resistance cracked. The Fed's August minutes were "Dovish", indicating further monetary easing is highly likely. As the minutes indicated that many members believed that more monetary easing measures should be implemented soon unless upcoming economic data showed "a substantial and sustainable strengthening" in economic recovery. Further monetary easing is now a matter of "when", instead a matter of "if". PGMs soared as driven by supply disruption in South Africa. Labor strike in Platinum mines operated by Lonmin has tendency to spread to other mines and the supply/demand balance will be affected. However, we expect surplus will remain this year. Rally in Crude Oil prices paused after gaining over the past few weeks. Sanctions over Iran and maintenance in a North Sea field are raising concerns over supply problems. On the demand side, both OECD and non-OECD demand appeared to grow in Q-3, together these led to recent strength in Crude Oil prices. The WTI-Brent narrowed last week but remained in the double-digit territory. Debate is on whether the spread will widen further in coming months. LTN believes that further widening looks unlikely as factors sending Brent Crude Oil prices higher have priced in while the situation in WTI Crude Oil is not as poor as seen. Yet, we expect the spread will continue to hang around current levels.

Precious Metals

Gold extended the rally last week after breaking above important resistance at 1641.56. The "Dovish" FOMC minutes for the August meeting raised speculations of QE-3. As the meeting was held before release of the July employment report, we believe the next trigger point would be the August report, due on 7 September 7, together with the Beige Book and Fed Chairman Ben Bernanke's Jackson Hole address on 31 August, while it's likely that further monetary measures would be announced in September, the tool might not necessary be QE-3. Judging from the tone in the minutes, policymakers might choose to change the language guidance at that meeting.

Platinum price has rallied more than 150 oz since 15 August, as violence at Lonmin mines has raised concerns about production suspension. The Gold-Platinum spread has since narrowed. But, it is not easy for Platinum to regain its premium over Gold like it was in Y 2011, because the production losses in Impala and Aquarius Platinum, Eastern Platinum and Lonmin, while evidenced the risks posed by labor actions in South Africa on production, are likely to remove the surplus in the Platinum market in Y 2012.

Crude Oil

Crude Oil paused after rallying over the past 3 wks. The outlook remains firm and big correction seems unlikely in the near-term as strong fundamentals are in place.

Maintenance at the North Sea Buzzard field has tightened supply. The situation will only improve when it is finished in September. The North Sea supply has widened WTI-Brent spread recently. There have been discussions over whether the situation will grow in Q-4, it is not likely IMO. Relief in Crude Oil supply after maintenance, seasonally weaker Crude Oil demand after mid-October and potential SPR release are expected to ease the tight Crude Oil market in coming month.

On WTI Crude Oil: overcapacity has been the main reason for sending WTI Crude Oil price below that of Brent. The situation will alleviate modestly as more storage facilities have been invested over the past 1-2 yrs in Canada, Cushing and the Midwest. The sharp fall in WTI Crude Oil prices due to the Cushing over-stockpiling should not repeat.

Natural Gas

Nymex Nat Gas price fell for a 5th wk running. According to the DOE-EIA, Nat Gas storage increased 47 BCF to 3 308 BCF in the week ended 17 August. Stocks were +423 BCFhigher than the same period last year and +357 BCF above the 5-yr average of 2 951 BCF.

Rig Count: Baker Hughes reported that the number of Nat Gas rigs gained +2 units to 486 in the week ended August 24. Crude Oil rigs fell -17 units to 1 408 and miscellaneous rigs dipped+1 unit to 4 and the total number of rigs was down -16 units to 1 891 units. Directionally oriented combined oil, gas, and miscellaneous rigs slipped -9 units to 229 units while horizontal rigs increased +6 units to 1 159 and vertical rigs slid -13 units to 519 during the week.

The Overall Technicals

Comex Gold (GC)

Gold break 1641.55 resistance last week and rose to as high as 1677.5 before forming a temporary top.

My initial bias is Neutral this week for some consolidations, but any Southside of retreat should be contained well above 1629.7 support and bring on another rise.

This current development indicates that the fall from 1792.7 finished at 1526.7, an extension of this rally is expected ahead for upper trend line resistance now at 1770, be cautious for some topping up there.

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

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

Comex Gold Continuous Contract Daily Chart


Comex Silver (SI)

Silver took out the resistance at 28.445 last week and jumped to as high as 30.79 before forming an temporary top.

My initial bias is Neutral this week for some consolidation but retreat should be contained above 28.445 support and bring another rally. Rebound from 26.07 should at least be a correction to fall from 37.58. With 38.2% fibo retracement of 37.58 to 26.105 at 30.488 met, the next target will be 61.8% fibo retracement at 33.19.

The Big Picture: price actions from 26.15 should be a consolidation pattern only. This current development indicates that it is still in progress with rebound from 26.105 as a leg. I will stay Bearish as long as the resistance at 37.58 holds, and expect fall from 49.28 to extend lower eventually.

The Long Term Picture: the big Q remains on whether 49.82 is a medium term or long term top. This current actionis favoring the latter. I would prefer to see sustained break of 61.8% fibo retracement of 8.4 to 49.82 at 24.22 to confirm it.

Barring that, the 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 rose to as high as 98.29 last week and met the target of 61.8% fibo retracement of 110.55 to 77.28 at 97.84. A short term top could be formed there on Bearish divergence condition in 4 hrs MACD. The bias is turned Neutral for some consolidations 1st.

Note: another rally remains in favor as long as 92.94 support holds. A move above 98.29 will turn bias back to the Northside for 100 and above. But, the rise from 77.28 could be the 4th leg inside the Triangle pattern from 114.83. So, we have to be cautious on Topping between 100 and 110. A clear break of 92.94 will be the 1stsignal of reversal and turn focus to 86.92, the Key support, for confirmation.

The Big Picture: the price actions from 114.83 are viewed as either a 3 wave consolidation pattern that has finished at 77.28, or a 5 wave Triangle pattern that is still unfolding. In any case, a clear 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 Northside breakout, an Southside action should be contained above 77.28, the Key support.

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 still 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.