The Overall Fundamentals

This looks to be a busy week, as the market will be monitoring developments in the US debt ceiling debate, RBA, BOJ, ECB and BOE will be meeting on monetary decisions during the week.

PMIs will also be released and moderation in manufacturing activities in China, the USD and the UK may weaken equity sentiment further.

Gold and Silver

My look at the markets augur that players are more Bullish on Gold's outlook than they were 6 months ago. Most that I read expected the Gold price to average 1500 oz and above.

The median Gold price forecasts are 1510 in Y 2011 and 1575 in Y2012, up from January's forecasts of Y 1453 and Y 1425 respectively. Macro-economic uncertainty is the main driver for players to Gold.

Ok, the European finance ministers agreed on new measures to contain sovereign debt crisis in peripheral countries, but the market's worries have not been dampened, as indicated in widening yield spread and CDS spread.

Meanwhile, rating agencies S&P and Moody downgraded Greece's rating last week despite the new rescue plan. Both agencies warned that a default is inevitable. These suggest that the measures announced after the EU summit can at most soothe the situation in the near-term while core problems are still not resolved.

In the US, the impasse over US debt ceiling has hurt confidence worldwide. Although, in the event that the US Congress does agrees to a debt ceiling rise, the US still lacks a feasible long-term plan to reduce deficits.

That said I expect players, official, institutional and retail, to reinforce their efforts to diversify their asset away from USD, thus providing a good opportunity for investment in Gold.

The deteriorating economic condition in the US will cause the US Fed to delay its tightening schedule. While the market has been worrying about a default in US debt, any agreement in raising the debt ceiling and deficit cutting will only lift USD temporarily.

Fiscal tightening may trigger the US Fed to extend and expand monetary easing to stimulate the economy.

Even if there's no official QE-3, the Fed funds rate will stay at exceptionally low level for a longer period than previously expected. As long as interest rates remain at Zero or so, I believe Gold will continue to surprise to the Northside.

Gold is also appealing because it protects palyers during periods of inflation and deflation. Rising inflation pressure is what the Global economy is experiencing now.

In China, CPI rose at the fastest pace in 3 yr to +6.4% Y-Y in June from 5.5% Y-Y in May. Australia's latest report shows that headline CPI eased to +0.9% in Q-2 of Y 2011 from +1.6% a Quarter. On annual basis, inflation rose to +3.6%, up from +3.3% in Q-1 of Y 2011. New Zealand's inflation has continued to overshoot the central bank's 1-3% target. In the US, core inflation was Strong although headline CPI unexpectedly declined in June. The rise in Global inflation should lead to the rise in Gold demand.

Crude Oil

WTI Crude Oil price was pressured last week because of US debt uncertainties. The decline deepened Wednesday after unexpectedly large stock-builds and Friday after downside surprise in US growth.

The front-month contract declined -4.18% during the week. Brent Crude Oil price also declined, recording weekly loss of -1.63%, but the price remained within recent trading range of 115-120.

According to the US DOE/EIA report, the Crude Oil stockpile increased for the 1st time in 8 wks, by +2.30 mmb, to 354.03 mmb in the week ended July 22. Current level of Crude Oil inventory has stayed at the top end of the 5-yr range.

But, with the release of SPR eventually reflecting in inventory data, the level is expected to rise further and exceed the 5-yr range in the coming weeks.

Fuel demand has been soft. Gasoline demand has averaged 9.09M BPD over the past 4 wks, down -3.31%, from the same period last year while distillate demand fell -3.51% Y-Y to 3.48M BPD over the last 4 wks. The coincidence of SPR release and seasonal weakness in US fuel demand should result in further widening of the WTI-Brent Crude Oil spread.


The Overall Technicals

Comex Gold (GC)

Gold's up-trend extended last week, and made another record high at 1637.5.

The Initial bias is to the Northside this week for 61.8% projection of 1309.1 to 1577.4 from 1478.3 at 1644.1 first.

A clear break targets 100% projection to 1746.6 next.

On the Downside: there is a mild Bearish divergence condition in 4 hrs MACD. A break of 1602.8, the minor support, will indicate short term Topping, and should bring pull back towards 1577.4, the resistance turned Key support, instead.

The Big Picture: Gold's up-trend from Y 2009's low of 681 is in progress, and should target 161.8% projection of 1155.6 to 1432.5 from 1309.1 at 1757.1 next.

On the Downside: a clear break of 1478.3, the Key support, is needed to be the 1st signal of medium term Topping. I am Bullish gold, even in case of deep pull back in here.

The Long Term Picture: Gold's rise from 681 is treated as resumption of the long term up-trend from Y 1999 low of 253, and there is no sign of Topping in here. This up-trend may now be targeting 161.8% projection of 253 to 1033.9 from 681 at 1945.6. Stay tuned...
Comex Silver (SI)

Silver saw a move to 41.465 last week but lost momentum, and turned sideway.

The initial bias Neutral this week for some more consolidations below 41.465 but any Southside action is expected to be contained by 38.21, Key support, and bring on another rise. A break above 41.465 extends the whole rebound from 32.30 towards 61.8% retracement of 49.82 to 32.30 at 43.125. But, a break below 38.21 augurs that the whole rise from 32.30 has finished, and should turn the bias back to the Southside for a test of 32.30/33.38, the Key support zone, instead.

The Big Picture: Silver's price action from 49.82 is treated as consolidation pattern in the long term up-trend. The 1st leg from 49.82 should have completed at 32.30 after drawing support from 50% retracement of 14.65 to 49.82 at 32.23. The rise from 32.30 is treated as the 2nd leg and could extend to 61.8% retracement of 49.82 to 32.30 at 43.13 and above. Strong resistance is expected below 49.82, and should bring a reversal, then there should be another fall to 32.30, and possibly below before the consolidation from 49.82 finishes.

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 completion as it faced strong resistance from 261.8% projection of 4.01 to 21.44 from 8.4 at 54.032. But it is too early to confirm long term reversal, it looks like an important Top should be near, if not already formed at 49.82. On a confirmation of reversal, Silver would likely fall towards 55-Months EMA at 20.45. Stay tuned...

Nymex Crude Oil (CL)

Crude Oil despite edging higher to 100.62, the subsequent fall suggests that the recovery from 89.61 has completed.

Note: with 102.44, the Key resistance, intact, decline from 114.83 is in favor to continue.

The initial bias is mildly on the Southside for this week for a move to 94.74, Key support. A clear break there confirms this, and targets a test of the 89.61 support mark next.

On the Upside: A clear break above 98.01, the minor resistance, will turn the bias back to the Northside and the focus will be back to 102.44, the 50% retracement of 114.83 to 89.61 at 102.22.

The Big Picture: the medium term rebound from 33.2 is treated as the 2nd leg of consolidation pattern from 147.24, and has just failed 100% projection of 33.2 to 89.35 from 64.23 at 114.98. Focus is on cluster Zone support at 83.85, 61.8% retracement of 64.23 to 114.83 at 83.65, 38.2% retracement of 33.2 to 114.83 at 84.10. A clear break break indicates the case of a medium term reversal, and turns my outlook Bearish for a move to 64.23, the Key support mark, and lower. But, a Strong rebound above this cluster support Zone keeps the medium term Bullish outlook in place, and brings another rise to above 115 level before a reversal IMO.

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 unfolding. A clear break of 83.85, Key support, confirms that the 2nd wave is finished, and the 3rd wave, a downward wave, should have started and targets a retest of the 33.2 low. Stay tuned...


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.