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The Overall Fundamentals
Geo-political tensions and monetary policies were in the headlights last week. Friday, Egypt's Hosni Mubarak finally stepped down as President, and handed power to the Military. The resignation ended Mubarak's 30 yr Iron Fisted rule, along with the protests over the past 3 wks.
WTI Crude Oil prices extended its weakness after the news and fell to a 10 wk low of 85.1 bbl before settling at 85.58, down -1.33% on the day and -3.88% on the week.
Gold prices also weakened as safe-haven demand subsided.
While the US Fed and the BoE kept the monetary measures unchanged and pledged to stay accommodative, the PBOC lifted China's Key interest rates by +25 bps, the 3rd rate hike since last October. Tightening in China, plus stimulus in the US and the UK signaled the divergent paths of recovery experienced in the Emerging and Advanced economies.
Agricultural product prices continue to be the engine of commodity prices last week.
Commodity indices put in a mixed performance (gainers: GSCI and DJ-UBS; losers: DBLCI, CRB and RICI) but the agricultural component gained across the board.
Corn prices rose during the week as WASDE revised lower its forecast for US Corn ending stocks for M-Y 2010/11 by -70M bushels lower with higher expected food, seed, and industrial use. Separately, UN's Food and Agricultural Organization reported that the FAO Food Price Index (FFPI) rose for the 7th consecutive month, averaging 231 points in January 2011, up +3.4% from December 2010 and the highest (in both real and nominal terms) since the index has been backtracked in 1990.
Prices of all the commodity groups LTN covers registered strong gainers in January vs. December, except for Meat, which is unchanged.
Rising food prices are Bullish for Gold prices from an inflationary and geo-political standpoint IMO. While the precious Yellow metal's movement may not reflect the situation in here, I expect to see the impacts in the long-term.
I believe the focus next week will be on macro-economic events, now that Egypt has faded from the immediate scene.
The FOMC minutes and BoE's quarterly inflation report will be released. The RBA will also release minutes for the February meeting. In China, preliminary trade data in January will be in the headlights.
The Overall Technical Outlook
Comex Gold (GC)
Gold's recovery from 1390.1 extended last week but my overall outlook is unchanged. The rise from 1309.1 should be a correction to he fall from 1424.4 only, and upside is expected to be limited by 61.8% retracement of 1424.4 to 1309.1 at 1380.4 and bring on the fall's resumption. A
A clear break below 1344.1, the minor support, will turn the bias back to the Southside towards1309.1, and lower IMO. But, sustained trading above 1380.4, a Key fibo level, will turn the target back to 1424.4, the high instead.
The Big Picture: the action now suggests that a medium term Top formed at 1432.5 after Gold failed to make 2 important projection targets, 161.8% projection of 931.3 to 1227.5 from 1044.5 at 1449.6 and 100% projection of 253 to 1033.9 from 681 at 1462.
Note: that whole up-trend from 681, the Y 2008 low, may have finished a 5 wave sequence. The fall from 1432.5 may now be in progress towards 1044.5/1227.5, the cluster support Zone.
On the Upside: a clear break of 1432.5 is needed to confirm the up-trend's resumption. Barring that, even in case of strong rebound, I do expect the fall to resume and extend the consolidation/correction from 1432.5.
The Long erm Picture: the rise from 681 is treated as resumption of the long term up-trend from Y 1999's low of 253. 100% projection of 253 to 1033.9 from 681 at 1462 is almost met and a sizeable correction should be on the horizon. But, even in case of deep fall, the 55 months EMA, now at 977.1 level, will present strong Support to contain the downside, and bring on another up-trend. Stay tuned...
Comex Silver (SI)
Silver's rebound from 26.30 extended to 30.50 last week but formed a temporary Top there, and turned sideway.
My initial bias is Neutral, and some sideway consolidation might be seen in here, a rise remains in favor as long as 29.26, the minor support, holds.
Note: I am treating the rise from 26.30 as the 2nd leg of consolidation pattern from 31.275. So, some resistance should be seen at and above the 31 mark, and bring on another fall to extend the consolidation. A clear break below 29.26, the minor support, will turn the bias back to the Southside toward 26.30, Key support.
The Big Picture: the weekly MACD's staying below the Signal line augurs that a medium term Top is in place at 31.275. But, the current action indicates that price actions from 31.275 are developing into sideway consolidations. So, just as long as 31.275 holds, I do expect another fall to 38.2% retracement of 17.735 to 31.275 at 26.103 and below to extend the consolidations. The downside action should be contained above 22.84, the Cluster support, 61.8% retracement of 17.735 to 31.275 at 22.907, and bring about a rebound.
The Long Term Picture: Silver's up-trend from the Y 2001 low of 4.01 is in progress. I am staying Bullish as long as 21.44 the Key resistance turned support holds, and expect the up-trend to extend to the 161.8% projection of 4.01, the Y 2001 low, to 21.44 the Y 2008 high, from 8.4, the Y 2008 low, to 36.6 next. Stay tuned...
Nymex Crude Oil (CL)
Crude Oil's fall from 92.84 extended to as low as 85.10 last week and is now pressing 85.11, the Key near term support mark.
My initial bias remains to the Southside this week for deeper fall.
A clear break of 85.11 will be an early signal of a reversal, and should bring deeper fall to medium term rising channel support, now at 82.0.
On the Upside: a clear break above 87.90, the minor resistance, will turn my bias back to the Northside, and the focus back towards 92.84, the high.
The Big Picture: Crude Oil lost its up-side momentum as seen in the mild Bearish divergence condition in daily MACD. This action now argues that 92.84 may be an important Top, and trading below the medium term channel support will confirm this, and focus on a deeper decline towards 64.23, the Key cluster support, next 50% retracement of 33.2 to 92.84 at 63.02.
On the Upside: a clear break of 92.84 is needed to confirm the rally's resumption. Otherwise, risk will remain to the Southside even in case of a recovery in here.
The Long Term Picture: the rebound off of 33.2 may not be finished. But, my overall view is unchanged. IMO Crude Oil is in a long term consolidation pattern from 147.27, with the 1st wave completed at 33.2, 2nd wave from there still unfolding. A clear break of 64.23, the Key support, will tell me that the 2nd wave is finished, and the 3rd wave, a Downward wave, will have started. Stay tuned...