The Overall Fundamentals

Gold and Silver

The CME raised margin requirements on Gold and Silver trading, effective September 26th, the minimum cash deposit for Gold futures will increase +21% to 11 475 per contract in the speculative Tier 1 category while the minimum cash deposit for Silver will rise +16% to 24 975.

CME's move aims at reducing volatility in the prices of the 2 metals as they have fallen sharply over the past few days.

The precious metal complex declined led by the fall in Silver that fell 26.28% last week. The precious White metal followed Gold rise higher in July and August, but lacks supportive fundamentals by itself.

CME's margin raise, together with rapid deterioration Global economic outlook may lead Silver to correct more in the morning.

I do not rule of a repeat of the situation in late April and early May when Cilver corrected almost 30% in a week after the CME raised the margin requirements.

I am more confident on Gold, though we could see a further correction in the weeks ahead, any sell off would be temporary IMO.

As long as the market remains pessimistic over Global economic uncertainty, and central bankers are prone to ease further and to keep interest rates low, buying interests for the precious Yellow metal should resume.

Crude Oil

The energy complex fell with WTI Crude Oil leading the way.

During last week, the WTI contract for Nov delivery fell 9.45%, and the equivalent Brent Crude contract fell 7.35%. Nymex heating oil and gasoline prices also fell 7 and 8.5%.

The sell off in Crude Oil was a tied to a weaker economic outlook. Players sold their 'risky' assets. The fundamentals remain resilient though.

The US Crude stockpile fell 7.34 mmb to 339.05 mmb in the week ended September 16. 3 out of 5 PADDs recorded stock draws, particularly, Cushing stock slipped -0.23 mmb to 32.00 mmb.

The huge draw was due to the absence of the 0.6M bpd of supply from the US SPR and the lack of imports.

Total petroleum demand also rebounded +0.37M bpd to 19.02M bpd during the week. Export growth is the Key factor driving total demand higher as domestic consumption weakened.

The DOE-EIA also addressed the growth importance of exports. Motor gasoline exports rose 4% of total demand of gasoline from Y 2010 to mid-2011, up from 1-2% from Y's 2000 to 2009.

Distillate exports contributed more than 10% of distillate product supplied from Y 2009 to mid-2011, up from less than 10% from Y's 2000 to 2008.

Total petroleum stock is now at level lower than a year ago. Last week's data shows that inventory has been down -65.84 mmb, accelerating from an average of 53.83 mmb drop over the past 4 weeks.

Barring further deterioration in Global economic outlook which will constrain US as well as foreign demand, current weakness in domestic demand has been offset by resilience in exports. This, in turns, helps draw down the inventory.

The Overall Technicals

Comex Gold (GC)

Gold fell to 1631.7 last week and the Strong break of 1705.4 support confirmed that the medium term trend has reversed with a Double Top; 1917.9, 1923.7.

Initial bias remains on the Southside this week and deeper fall should be seen to 1577.4, the resistance turned support, next.

On the Upside: a break above 1683.6, the minor resistance, will turn bias Neutral and bring consolidations. But recovery should be limited below 1765.4,the support turned resistance, and bring on the fall's resumption.

The Big Picture: this current action indicates that Gold has made a medium term top at 1923.7, ahead of long term projection level of 161.8% projection of 253 to 1033.9 from 681 at 1945.6 and the 2000 psychological level. Though the fall from 1923.7 is deep, Gold is holding inside long term rising channel from 681 and 55 weeks EMA at 1504.1. So, that being the case, I an not too Bearish Gold yet. Strong support is anticipated at 1478.3/1577.4, the Key support zone, to contained the downside, at least initially, and bring on a rebound. But, a clear break of 1478.3 will Strongly suggest that the long term up-trend has reversed.

The Long Term Picture: Gold saw Strong resistance ahead of 161.8% projection of 253 to 1033.9 from 681 at 1945.6 and fell sharply, but there is no change in the long term up-trend yet. As long as 1478.3 support holds, I will stay Bullish and expect an eventual break of 2000, the psych mark, in the long run. Nevertheless, a clear break of 1478.3 will be an important signal that whole up trend from Y 1999 low of 253 is finished, in such a case, Gold could drop through 1033.9, the resistance turned support. Stay tuned...

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Gold Chart with HCM Custom Indicators

Comex Silver (SI)

Silver fell sharply to 29.845 last week, and the Strong break of 32.30 support confirmed resumption of the decline from 49.82.

Initial bias remains on the Southside this week and further fall should be seen to 100% projection of 49.82 to 32.30 from 44.275 at 26.75.

On the Upside: a break above 33.46, the minor resistance, will turn bias Neutral and bring consolidations. But recovery should be limited to well below 38.76, the Key resistance, and bring on another fall.

The Big Picture: the correction pattern from 49.82 resumed last week with the steep fall. Now, we are seeing price actions from 49.82 as correction to the up-trend from Y 2008 low 8.4. So, Strong support should be seen inside 26.30/31.275 support Zone, considering that 100% projection level of 26.75 is also there. Should Silver stabilize there and rebound, there is the prospect of another rally to 50, the psych mark. But, a clear break of 26.30 will question this case and augur that Silver is correcting the entire up-trend from the Y 2001 low of 4.01. In that case, a deeper decline will be seen through 21.44, the resistance turned support.

The Long Term Picture: the steep sell off from 49.82 now raises the possibility that long term up-trend from 4.01 is near to completion as it faced strong resistance from 261.8% projection of 4.01 to 21.44 from 8.4 at 54.032, though it is too early to confirm long term reversal yet. But, an important Top should be near, if not in already at 49.82. Upon confirmation of the reversal, Silver would likely dive towards 55 months EMA at 21.80 and below. Stay tuned...

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Silver Chart with HCM Custom Indicators

Nymex Crude Oil (CL)

Crude Oil fell to 77.55 last week, and the development affirmed the case that consolidation from 75.71 is finished at 90.52 and whole decline from 114.83 is resuming. Initial bias remains to the Southside this week with 82.21, the minor resistance, intact. Retest of 75.71 should be seen 1st though, a clear break there targets 70, the psych mark, and then 100% projection of 100.62 to 75.51 from 90.52 at 65.60.

On the Upside: a break above 82.21, the minor resistance, will turn bias Neutral and bring consolidations. But recovery should be limited by 4 hrs 55 EMA at 85.68, and bring on the fall's resumption.

The Big Picture: medium term rebound from 33.2 is treated as the second leg of consolidation pattern from 147.24 and should have finished at 114.83 already. Current decline should target next key cluster support at 64.23 (61.8% retracement of 33.2 to 114.83 at 64.38) next. Sustained break will pave the way to retest 33.2 low. On the upside, break of 90.52 resistance is needed to invalidate this view or we'll stay bearish in crude oil now.

The Long Term Picture: Crude Oil is in a long term consolidation pattern from 147.27, with the 1st wave completed at 33.2, the 2nd wave may be finished. Upon confirmation of medium term reversal, the 3rd wave of the pattern should have started for a retest on 33.2 low.

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Brent Oil with HCM Custom Indicators

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.