The Overall Fundamentals The precious metal complex got beat-up last week. The main reason; the Fed's more hawkish policy statement delivered after the March FOMC meeting. Policymakers acknowledged improvement in economic conditions as unemployment rate has declined notably in recent months. On the Week: Gold declined -3.24% and settled at 1655.5, and Silver fell -4.69% to finish at 32.57. Crude Cil prices were range-bounded most time, and only showed some volatility later in the week after an unverified report saying that the UK and the US would released strategic petroleum reserve. The news was later denied by both the UK and the US.
Gold's fall last week was mainly driven by the dissipated speculations of QE-3 and profit taking. Since the middle of last year, Gold traded in a broad range between 1600 -1850.
During the time, Gold 's rally was driven by anticipation of further central bank monetary easing, especially QE-3 by the US Fed, while the decline has been due to fading of such hopes.
The precious Yellow metal has declined almost -15% from thehigh of 1923.7 made last September. Whether Gold's long-term up-trend has ended is a controversial topic, but strength of official demand continues.
Central bank purchases, mainly from emerging economies, were very strong last week. According to London's FT, the Bank for International Settlements bought significant quantities of Gold on the International market on the falling price on behalf of central banks. The new reports stated that the BIS bought 4 to 6 tons of gold, worth roughly $250 to 300-M at current prices, in the OTC physical market last week.
Although the market appeared to be pricing out the chance of further QE-3, I believe that the US Fed will maintain its monetary policy as accommodative as possible with the next move in 2-H of this year.
I continue to believe that Zero interest rates in the US and negative real rates remain supportive for the precious Yellow metal.
Crude Oil speculations could remain this week as the US Energy Secretary Steven Chu and Treasury Secretary Timothy Geithner have stated recently that a release is under consideration of the government in order to bring down high oil prices Crude Oil prices slipped with the front-month WTI and Brent Crude contracts losing -0.32% and -0.13% respectively.
Concerns over Crude Oil supply disruption have been a main feature in the oil market since last year. The civil war in Libya triggered the IEA's June announcement of the coordinated release of 2-M BPD over 30 days onto the World market. Yet, the IEA executive director said earlier this week that there's no need for the release of SPR for now.
Taking a closer look at the demand-supply balance, I see that the supply side problem is probably more serious than last year.
Although production in Libya has been recovering, other Crude Oil producing countries (e.g. Iran, Syria, Sudan and Yemen) are under threat of output disruption, as the market faces the threat of a disruption to the Strait of Hormuz, despite the low probability of that anction.
Saudi Arabia has pledged to take the lost Iranian Crude Oil, the latest IEA data indicated that Saudi's spare capacity levels have fallen below 2-M BPD as of February for the 1st time since Q-4 Y 2008. This suggests that there's less buffer for Saudi to act as a substitute.
Should there be a SPR release, price actions of Crude Oil and gasoline are expected to fall as learnt from the experience last year. Following the SPR release in June last year, retail gasoline and WTI Crude Oil prices dropped -9% and -12% respectively in the following 3 months.
The DOE-EIA reported that Nat Gas inventory dropped -64 bcf to 2 369 bcf in the week ended 9 March. Stocks were +735 bcf above the same period last year and +807 bcf, or +51.7%, above the 5-yr average of 1 562 bcf.
Baker Hughes reported that the number of Nat Gas rigs fell -7 units to 663 in the week ended 15 March. Oil rigs rose +21 units to 1 317 and miscellaneous rigs dipped -3 unit to 4, sending the total number of rigs to 1 984 units.
Directionally oriented combined Oil, Nat Gas, and miscellaneous rigs climbed +16 units to 228 while horizontal rigs increased +16 units to 1 180 and vertical rigs fell -21 units to 576 during the week
The Overall Technicals
Comex Gold (GC)
Gold's decline resumed after recovery was limited by falling 4-Hours 55 EMA and tapped 1634.7. I expect more fall in near term to 100% projection of 1792.7 to 1663.4 from 1717.4 at 1588.1. Also, the rise from 1523.9 has likely completed at 1792.7, ahead of 1804.4 Key resistance. A clear break of 1588.1 targets 1500 psych level.
On the upside: a break above 1717.4 is needed to indicate completion of fall from 1792.7. Barring that, I am stay Bearish in here for now.
The Big Picture: Gold's price actions from 1923.7, the high, are a medium term consolidation pattern IMO. The failure to break 1804.4 and subsequent sharp fall augurs that such consolidation pattern is not finished yet and Gold might have just started another falling leg. I do expect strong support from 1478.3/1577.4 support Zone to contain any Southside action to finish the consolidation and bring on the up-trend resumption to another high above 1923.7 sooner or later.
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 level in the long run. Stay tuned...
Comex Gold Continuous Contract Weekly Chart
Comex Silver (SI)
Silver's break of 32.49 support last week confirmed that fall from 37.48 has resumed. This current development should have confirmed completion of the rebound from 26.145 at 37.48.
A deeper decline should now be seen to 61.8% retracement of 26.145 to 37.46 at 30.467 first. A clear break there targets a test of 26.145..
On the Upside: a break above 34.45, the Key resistance, is needed to signal completion of the fall from 37.48. Barring that, I will stay cautiously Bearish even in case of recovery.
The Big Picture, current development indicates that rebound from 26.145 is complete. The price actions from 26.15 are a consolidation pattern that finished with 3 waves to 37.48., so, the whole decline from 49.82 high is not over yet and targets 61.8% retracement of 8.4 to 49.82 at 24.22 and below. A clear break of 37.48 the Key resistance is needed to invalidate this Bearish outlook.
The Long Term Picture, the main question remains on whether 49.82 is a medium term or long term Top. This current development action is starting to favor the latter IMO. Though, I sill would like to see a sustained break of 61.8% retracement of 8.4 to 49.82 at 24.22 to confirm that action. Barring that the price actions from 49.82 could be developing into a sideway pattern. Stay tuned...
Comex Silver Continuous Contract Weekly Chart
Nymex Crude Oil (CL)
Crude oil dripped to 103.78 last week as consolidation from 110.55 extended but quickly recovered. Such consolidation might have completed already. Initial bias is mildly on the upside this week for retest of 110.55. Break will confirm resumption of recent rally and should target 114.83 key resistance next. On the downside, though, below 103.78 will extend the correction to 61.8% retracement of 95.44 to 110.55 at 101.21.
The Big Picture: the medium term up-trend from 33.2 should ot be finished yet. The rise from 74.95 is seen as resumption of that rally. A clear break of 114.83 targets 61.8% projection of 33.2 to 114.83 from 74.95 at 125.40.
On the Downside: a clear break of 95.44, the Key support, augurs that the correction pattern from 114.83 is going to extend with another falling leg to 74.95 and below before it is finished.
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. Crude Oil could make another high above 114.83, I anticipate strong resistance ahead of 147.24 to bring on a reversal for the 3rd leg of the consolidation pattern. Stay tuned...
Nymex Crude Oil Continuous Contract Weekly Chart
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.