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Paul Ebeling Gold, Silver and Crude Oil Report


Gold, Silver and Oil Report 15 November, 2010

Red's Weekly Report on Gold, Silver and Crude Oil Fundamental Overview Last week the market's focus shifted from Fed's QE-2 to the G-20 currency and trade tensions, and then to possible rescue of peripheral European economies by the European Union. Strong macro-economic data in China initially boosted market sentiment and drove growth asset prices North. Then, speculation that the government will accelerate tightening measures by raising interest rates creeped in and dampened risk appetite. The USD rebounded across the board as financial leaders and economists from around the World criticized US' easing policy. The G-20 leaders’ discussion about the issue pointed out seriousness of the situation. In response to US President Obama's criticism that China has spent 'enormous amounts of money intervening in the market' to keep RMB 'undervalued', China's President Hu Jintao reaffirmed that the country will 'continue to improve its currency reform at a steady pace'. It will also move to balance the trade gap by 'boosting domestic demand'. The G-20 Summit failed to resolve international trade imbalances, and despite the pledge to work on 'indicative guidelines' to avoid sustained current-account imbalances that require preventive and corrective actions to be taken, the lack of clarity suggests that individual countries will continue to use their own ways to achieve their own goals. Rising inflationary concerns, renewed sovereign debt concerns and strong Asian buying sent Gold to a new record high and Silver to new 30 yr highs. It is clear that it will take some time for the US Fed to bring inflation back to levels that are consistent with its mandate; the return to QE has sent enormous capitals to countries with higher yields. Emerging countries such as China and South Korea are expected to record higher CPI in coming months. Capital inflows in China have been rising despite Government's tightening measures. China's CPI rose +4.4% YoY in October, besting market expectations of +4% and September's +3.6%, as driven by rental and cotton prices. New lending reached RMB 588B, vs. a market expectation of RMB 450 B. It's likely that annual lending will reach RMB 8T, exceeding the government target of RMB 7.5 T. Other data, such as IP, fixed asset investment and retail sales, expanded in annual terms but came inline with market forecasts. Stubbornly high inflation and net loans triggered the PBOC to raise RRR by 50 bps. Inflation is expected to rise further in November and the Chinese government will need to step up its measures to curb potential asset "Bubbles".

Although ease in European sovereign triggered sell-off in the Gold price last Friday, uncertainty remains and should lend support to the precious Yellow metal.

As the US Fed provides more liquidity to boost economic growth, the more the Euro will strengthen vs. the USD. Gold and Silver correlations with EUR-USD pair have fallen sharply during last week, suggesting Euro's weakness because of sovereign concerns may not necessarily weigh on precious metal prices. It is very likely that players may turn to these metals as safe-haven assets as they lose confidence in "Fiat" Currencies aka Fast Money. The Indian festival Diwali officially began on November 5. The festival typically indicates the seasonal high in Indian Gold buying. According to the Bombay Bullion Association, Gold imports rose by 25% YoY during the festival week despite high prices. WTI Crude Oil rose earlier in the week and rallied to a new 2-yr high of 88.63 on Thursday on a surprising decline in petroleum inventories and stronger-than-expected Chinese macro-economic data boosted sentiment. Upgrades in Global Crude Oil consumption by EIA, OPEC and IEA also sent Oil prices higher. But, gains were given back on intensified sovereign concerns in peripheral European economies and increasing possibility of a rate hike in China. The front-month WTI contract fell to 84.52, the lowest level in a week, before settling at 84.88 Friday. Major Oil agencies raised their forecasts on Global Crude Oil demand for Y's 2010 and 2011, as growth in OECD consumption exceeded expectations after Q-1 Y 2010.

The Overall Technical Outlook for Comex Gold (GC) Gold rose to new record high of 1424.3 last week, but formed a short term Top there and settled back. The Initial bias remains mildly on the Southside this week for deeper fall. Strong support is expected at 1315.8, Key support, which is close to 38.2%. Fibo retracement of 1155.6 to 1424.3 at 1321.7 will bring on up-trend resumption. On the Upside: a break above 1395, the minor resistance, will turn the intra-day bias back to the upside. And a clear break of 1424.3 will target 161.8% projection of 1084.8 to 1266.5 from 1155.6 at 1449.6 next.

The Big Picture: again, the rise from 1155.6 is treated as the 5th wave of the 5 wave sequence from 1044.5, which should also be 5th wave of the rally from 681, the Y 2008 low. This rally is expected to continue towards 161.8% projection of 931.3 to 1227.5 from 1044.5 at 1449.6 before finishing. Yes, I am aware of long-term projection target of 100% projection of 253 to 1033.9 from 681 at 1462 and there I anticipate Strong resistance to bring on a medium term correction.

On the Downside: but a clear break of 1315.8, Key support, will be an early warning sign of a medium term reversal and will turn my focus back to 1155.6 support for confirmation. The Long Term Picture: the rise from 681 is treated as resumption of the long-term up-trend from Y 1999 low of 253. The anticipated correction did not happen, and Gold will now likely climb to the 100% projection of 253 to 1033.9 from 681 at 1462 before making a Top. I am Bullish on Gold. Stay tuned...

The Overall Technical Outlook for Comex Silver (SI) Silver rose to 29.34 last week, and formed a short term Top there and settled back. My initial bias remains mildly on the Southside this week for further decline to correct recent up-trend. Still, strong support is expected at the 24.95 cluster support mark, i.e. 38.2% retracement of 17.735 to 29.34 at 24.907, and will bring on a rally resumption.

On the Upside: a clear break of 29.34 targets 261.8 projection of 14.65 to 19.845 from 17.735 at 31.336 next.

The Big Picture: Silver's up-trend is in an acceleration phase. This rally from 8.4 is treated as resumption of the rise from 2001 low of 4.01. 100% projection at 25.84 already met. And Silver should now be targeting the next Key projection level at 161.8% projection of 4.01 to 21.44 from 8.4 at 36.6 level.

On the Downside: A break of 20, the Key psych support mark, is needed see a medium term reversal. Barring that, I am Bullish Silver. Stay tuned....

The Overall Technical Outlook on Nymex Crude Oil (CL) Crude Oil rose to 88.63 last week, and formed a short term Top there and settled back. My initial bias remains mildly on the Southside this week for deeper decline to correct whole rise from 70.76. There is strong support at 38.2% retracement of 70.76 to 88.63 at 81.80 and bring another rise. This rally from 64.23 is expected to continue to 90, the Key psych level, and higher.

The Big Picture: the medium term rebound from 33.2 is still in progress, I believe. Such rise is treated as the second wave of the consolidation pattern that started at 147.27. Further rise could still be be seen towards 50% retracement of 147.27 to 33.2 at 90.24 and possibly further to 61.8% retracement at 103.70. However, break of 70.76 support will be the first warning that crude oil has topped out. Further break of 64.23 support will confirm and turn outlook bearish to start another medium term decline.

The Long Term Picture: the re-bound from 33.2 is not finished, and my overall view remains unchanged. Crude Oil is in a long-term consolidation pattern from 147.27, with 1st wave completed at 33.2, 2nd wave from there is un-folding. This current development suggests that a breach of 61.8% retracement at 103.70 is likely, if it hits that mark then I will start to focus on a reversal signal alert above 103.70. I am Bullish on Crude Oil in here. Stay tuned...

Paul A. Ebeling, Jnr. aka The Red Roadmaster Paul A. Ebeling, Jr. 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. Ebeling 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. Paul Ebeling is a CO-Founder of Ebeling Heffernan Asia’s fastest growing Advisory Firm and is a Senior Dark Pool FX, Equity and Commodity Analyst at Heffernan Capital Management.

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Report on Gold, Silver and Crude Oil  

Report on Gold, Silver and Crude Oil