The Overall Fundamentals

Reversing weakness early in the week, commodities generally gained on weekly basis as EU leaders said they would formulate plans to recapitalize the banking system. And non-standard easing measures were announced by the ECB and the BOE in the hope of stimulating he recovery. Positive data flow helped boost market sentiment. Bullishness may be temporary if policymakers do not find ways to strengthen fiscal reform.

US non-farm payrolls unexpectedly increased +103-K in September, following an upwardly revised +57-K a month ago. The unemployment rate stayed at 9.1%.

This week, the FOMC minutes will report details about US policymakers' views on the economic outlook and their stance on Operation Twist.

Gold and Silver

Gold traded above 1600 last week. Finishing the week +0.87%, the precious Yellow metal recorded the first positive read in 5 weeks.

The correction after rising to a record high of 1923.7 has been driven by a confluence of factors including CME' increase in margin requirements, profit-taking after the Strong rally from the beginning of the year and liquidation of Long positions to cover losses in other markets.

Despite the sell off, holdings in ETF and Bullion sales are firm. Gold holdings in SPDR Gold Trust, the world's largest ETF, stayed at record level.

The US Mint reported that Gold sales in September were 91-K oz, down from 112-K oz in August but well-above levels in June and July.

In the first week of October, Gold sales reached 23.5-K, signaling the possibility of exceeding September's total.

My POV is that Gold's long-term is not finished. Instead, it is setting up to make new highs after the correction as long as uncertainties in macro-economic outlook persist.

Economic deterioration in both sides of the Atlantic triggered central banks to step up monetary easing and to keep interest rates at exceptionally levels. And the impact of fiscal austerity measures are going to reflect on declining economic indicators.

It will take a long time to resolve the sovereign debt crisis in the EuroZone, and the issues will continue to dampen market sentiment, increasing investors' demand for safe-haven assets.

Silver fell to 28.435 last week, and attempted to rally but failed below 33.58 and faded, the bias is Neutral this week, look for some sideways trading.

Crude Oil

Crude Oil gained as led by the +4.77% increase in WTI Crude Oil price. Brent Crude also added +3.01% on the week.

Downside risks remained in the short-term for Crude Oil on intensifying uncertainty in the Global economic outlook.

A sharp sell off cannot be ruled out should economic data disappoint and more negative news come debt-ridden European countries.

The Crude Oil market is resilient. Global demand is expected to growth 1.4-1.5% in each of Y's 2011 and 2012. Non-OPEC supplies are restrained while the OPEC is unable to fully substitute the loss of Libyan output. Tensions in Libya eased but it will probably take some time for its Crude Oil production to return to pre-crisis levels.

The WTI-Brent Crude spread narrowed steadily after widening to a record level of 26-27 in early September. Despite this, the Gap remained above 20. The situation will likely continue over the coming 2 yrs until additional infrastructure is in place to alleviate the excess supply condition at the terminal of Cushing, Oklahoma.

The Overall Technicals

Comex Gold (GC)

Gold remained range bound at 1585-1683.5 last week, there is no change in the outlook. I maintain that break of 1705.4 Double Top Neckline is needed to indicate near term trend reversal. Barring that the fall from 1923.7 is expected to continue.

On the Downside: a break below 1585, the minor support, will turn the bias to the Southside for 1535 and break there will target 1500, the psych mark, next. But, a clear break of 1705.4 argues that fall from 1923.7 might be finished, and will bring Stronger rise back towards the high.

The Big Picture: the current development 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 2000 the psych mark. While the fall from 1923.7 is deep, Gold is holding inside long term rising channel from 681 and above 55 weeks EMA at 1513.3. That being the case I am not too Bearish Gold yet. Strong support is seen at 1478.3-1577.4 Support Zone to contained any downside pressure initially, and bring on a rebound.

Note: a clear break of 1478.3 will Strongly suggest that the long term up trend has reversed.

The Long Term Picture: Gold faced strong resistance ahead of 161.8% projection of 253 to 1033.9 from 681 at 1945.6 and dropped sharply. But there is no change in the long term up-trend now as long as 1478.3 the Key support holds. I am staying Bullish, and expect an eventual break of 2000, the psych mark, in the long run.

Note: a break of 1478.3 will be an important signal that whole up-trend from the Y 1999 low of 253 is finished, and, in that case, Gold could drop through 1033.9, the Resistance turned Support. Stay tuned...


Comex Silver (SI)

After dipping to 28.435, Silver tried to rally, failed below 33.58 and faded. The initial bias is Neutral this week for some sideway trading between 28.435-33.58.

On the Upside: a break above 33.58 will extend the rebound from 26.15 and should target 38.76-44.275, the Key resistance Zone. But a break below 28.435 will turn focus back towards 26.15.

The Big Picture: right now I am treating the price actions from 49.82 as correction to the up-trend from the Y 2008 low 8.4. So, Strong support should be seen inside 26.30-31.275 the 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 dampen POV and argue that Silver is correcting the up-trend from the Y 2001 low of 4.01. If that is the case, a deeper decline should be seen through 21.44, the resistance turned support.

The Long Term Picture: the steep sell off from 49.82 raises the possibility that long term up-trend from 4.01 is nearly finished as it faced strong resistance from 261.8% projection of 4.01 to 21.44 from 8.4 at 54.032. It is to early to confirm long term reversal yet. But, an important Top should be near, if not at 49.82.

IMO, upon the confirmation of reversal, Silver would likely dive towards 55 months EMA at 21.80 and below . Stay tuned...


Nymex Crude Oil (CL)

Crude Oil briefly breached 75.71 to 74.95 last week, then rebounded strongly to 84.00.

The Initial bias is mildly to the Northside this week, and a further rebound might be seen to 84.77 and higher. But, there is no change in the Bearish POV that decline from 114.83 is not yet finished. So, I expect the upside to be limited to below 90.52, the Key resistance, and bring on another fall.

A break below 79.08, the minor support, turns the intra-day bias back to the Southside, and break of 74.95 will target 70, the psych mark, next.

The Big Picture: the 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 1st wave completed at 33.2, 2nd wave might be finished. Upon confirmation of medium term reversal, the 3rd wave of the pattern should have started for a retest on 33.2 low. Stay tuned...


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.