The Overall Fundamentals
Precious Metals (Gold and Silver)
Gold gained for a 2nd week running. There are 3 Key factors that drove Gold higher last week.
1) the US Fed announced no change in interest rates and stimulus measures. It is clear that Fed policymakers were/are considering additional easing measures such as large-scale purchases of mortgage-backed securities, and that 3 members; Minneapolis Fed President Kocherlakota, Philadelphia Fed President Plosser and Dallas Fed President Fisher who dissented on implementation of Operation Twist at the last meeting dropped their dissent while Chicago Fed President Evans voted against the decision to stay on hold favoring additional policy accommodation. This indicates that the US economic condition has deteriorated so rapidly that more Fed members believed in the need of easing. On that theory, the Gold Bulls found a good reason to accumulate the precious Yellow metal as the US Fed funds rate will remain at exceptionally levels for at least until mid-2013 and the eventual implementation of QE-3 will weaken the USD.
2) the ECB cut the main refinancing rate by -25 bps to 1.25% at its November meeting. Saying in the accompanying statement that 'some of the downside risks have been materializing, which makes a significant revision to forecasts and projections for average real GDP growth in Y 2012 very likely'. Plus, despite the ECB's stress on credibility and urge for governments to deal with fiscal issues, it appears that the central bank will be a main body in bailing out debt-ridden countries. So, I look for the ECB's buying Spanish and Italian bonds later. Similar to the case of the US Fed, Gold benefits as the ECB keeps interest rates low.
3) the ups and downs of equities markets sentiment was driven by Greece, which had called for a referendum of the EU bailout plan agreed in late October but then backed away on Srong criticism. The acts raised questions about whether the Greek Prime Minister should step down and if the Country should stay in the EuroZone. These Q's raised uncertainty in the sovereign debt crisis in the region and Euro's outlook. Although Gold and Euro moves in line traditionally, the precious Yellow metal does rally during economic turmoil despite Euro's decline. That is what we have seen over the past 2 yrs when problems in European debts and banking systems triggered Strong demand for safe-haven investments
Energies (Crude Oil and Nat Gas)
Macro economic developments have dominated the Headline News and Crude Oil price movements, the DOE-EIA report offer some interesting points. Recent demand data has told a tale of 2 petroleum products, highlighting the strength on Distillate and the weakness on Gasoline. US Distillate demand has been rising while Gasoline demand dropping.
The 4-wk average of Distillate demand has been rising higher over the past week and reached 4.22M BPD for the week ended October 28. On the other hand, Gasoline demand has dropped sharply over the past few weeks, reaching the lowest level in a year last week. Seasonally, Distillate balances tend to tighten during Winter time as heating demand ramps up. I expect to see consumption in the Oil product to remain Strong.
The DOE-EIA reported that Nat Gas as inventory increased +78 bcf to 3 797 bcf in the week ended October 28. Stocks were -17 bcf below the same period last year but -201 bcf, or +5.6%, above the 5-yr average of 3 593 bcf.
Baker Hughes reported that the number of Nat Gas rigs declined by -27 units to 907 in the week ended November 4. Crude Oil rigs rose +34 units to 1112 and miscellaneous rigs dipped -2 units to 7, sending the total number of rigs to 2026 units. Directionally oriented combined Oil, Gas, and Miscellaneous rigs stayed unchanged at 243 units while horizontal rigs added +2 units to 1157 and vertical climbed +3 units to 626 during the week.
The Overall Technicals
Comex Gold (GC)
Gold's fall was contained at 1681.2 and rebound to 1769.5 last week. The rally is expected to 61.8% retracement of 1923.7 to 1535 at 1775.2 first. A break will show the way to retest 1923.7, the high.
On the Downside: a break of 1681.2 argues that the rebound from 1535 may be finished, and will turn bias back to the Southside for a test of 1604.7, the Key support, for confirmation.
The Big Picture: Gold is inside its long term rising channel from 681 and above 55 wks EMA at 1530.7 and so the longer term outlook remains Bullish IMO. Strong support is seen inside 1478.3/1577.4 support Zone as expected. The rebound form 1535 may extend further to retest 1923.7, the high, first. A clear break there confirms the up-trend resumption, But a failure below 1923.7 will bring another fall to extend the consolidation between 1478.3 and 1923.7.
The Long Term Picture: with 1478.3, the Key support intact, there is no change in my long term Bullish outlook in Gold. We could see some medium term consolidation, however, I look for an eventual break of 2000, the psych mark, in the long run. Stay tuned...
Comex Silver (SI)
Silver is in a sideway consolidation from 35.70. Initial bias is Neutral this week and some more consolidation should be coming. At this point, I am favoring an extension of the rally. A break above 35.7 should extend the rise from 26.15 towards 43.50, the Key resistance.
On the Downside: a break below 32.10 will turn the bias to the Southside, and from there a break of 29.935, the Key support, indicates that the rebound from 26.15 has finished, and will bring retest of this low IMO.
The Big Picture: this action suggests that the correction from 49.82 may have completed with 3 waves down to 26.15, after a brief break of 26.30, the Key support. It is too early to confirm the up-trend resumption. But, I will continue to stay cautiously Bullish as long as 29.935, the Key support, holds. Sustained trading above 55-Days EMA at 34.84 should show the way back to 44.275, the Key resistance. A break there targets a new high to above 49.82. But, a break of 29.935 will turn the focus back to 26.15, the Key support, instead.
The Long Term Picture: much volatility was seen in Silver after making a top at 49.82. But, so far, the development suggests that the selloff from 49.82 is a 4th wave correction in the 5 wave sequence from 8.4. So , it is possible to see a high above 49.82, say to 261.8% projection of 4.01 to 21.44 from 8.4 at 54.032 before Silver completes the long term up-trend from 4.01. Stay tuned...
Nymex Crude Oil (CL)
The near term outlook in Crude Oil is cautiously Bullish as long as 89.17, the Key support, holds. The decline from 114.83 should have finished at 74.95. A rally extension is in favor to 61.8% retracement of 114.83 to 74.95 at 99.60, which is close to 100, the psych mark, and 100.62, the Key resistance. A break of 89.17 augurs that the rebound from 74.95 is over and will turn the bias back to the Southside for 74.95 low.
The Big Picture: the choppy corrective structure shows that the price actions from 114.83 are a correction, or part of a consolidation pattern to decline from 114.83, and the decline should have completed at 74.95 after being supported above 50% retracement of 33.2 to 114.83 at 74.02. Meaning that the rise from 33.2 is not finished as I had forecast in the Summer, and that trading above 100, psych mark affirms this, and would likely send Crude Oil through 114.83 high.
On the Downside: a clear break of 74.95 will revive the case that rise from 33.2 finished at 114.83 and will turn my outlook Bearish.
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 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 a reversal for the 3rd leg of the consolidation pattern. Stay tuned...
Nymex Natural Gas (NG)
I am now favoring the case that rebound from 3.446 is finished with 3 waves up to 3.978. And a move below 3.73, the temporary low, will bring deeper fall to retest 3.446 first. But, a break above 3.978 will invalidate this Bearish POV. If that happens a stronger rebound should be seen towards 38.2% retracement of 4.398 to 3.446 at 4.033 next.
The Big Picture: Nat Gas price actions from 6.108 are treated as consolidation to a medium term rebound from 2.409 low. There is no indication of completion of such consolidation pattern yet, and more medium term range trading should be seen.
On the Upside: I prefer to see 4.983, the Key resistance, taken out decisively 1st before confirming completion of the consolidation from 6.108. Batting that, I favor another fall eventually to 3.255, and below before rise from 2.409 resumes.
The Long Term Picture: 2.409 is viewed as an important Bottom, and the rebound from there is treated as a medium term correction to down trend from the Y 2008 high of 13.694. Such a rebound is expected to extend further to 38.2% retracement of 13.694 to 2.409 at 6.72 at least. 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.