Paul Ebeling Report, Gold, Oil, Silver 27 March 2011
Red's Weekly Report on Gold, Silver and Crude Oil Charts by Omega Research 27 March 2011 Paul A. Ebeling, Jnr. www.livetradingnews.com The Overall Fundamentals Commodities rebounded last week as the nuclear crisis in Japan eased. The fighting in Libya continues, and I believe that the market has priced in a period of political and economic disruption in the MENA region with significant amount of oil and energy capacity suspended for some time to come. In my talks with players they are focusing on macro-economic events. Data released last week in the USA were mixed, though we saw a drop in home sales, the market liked that the Country's job market has been improving, durable goods orders disappointed a bit, and falls in both existing home sales and new home sales data indicated consumer spending remains dampened. In the EuroZone, concerns about sovereign and debt problems in the European periphery re-emerged. Portugal's PM resigned after the Parliament rejected his fiscal-consolidation plan, raising bets of Portugal's request for a rescue from the EFSF. Concerns about the stability of the banking and financial systems in the EU peripheral countries heightened by rating agencies' downgrades. Fitch Ratings and S&P downgraded Portugal's credit ratings to A- from A+ and BBB from A- respectively while Moody's cut senior debt and deposit ratings of 30 smaller banks in Spain as the agency doubted government's support to the lenders. The EU Summit held on March 24-25 note what most expected, i.e. the capital structure and interest rates for the new ESM have been confirmed. The ESM will have a total subscribed capital of EUR700B, of which EUR80B will be in the form of paid-up capital provided by Eurozone member states being phased in from July 2013 in 5 equal annual installments. Details on the new EFSF will not be finalized until June. No new updates were provided regarding financial assistance for Ireland or Portugal. As we know from our experience, Gold benefits as sovereign crisis in the Eurozone heightens, and we here at Live Trading News believe part of the Gold-buying last week reflected those concerns. But, strength in the precious Yellow metal was, for the most part, driven by geo-political tensions in the MENA region and uncertainty about the impacts on Japan from the recent disasters. Despite the rise to a new record price mark, Gold reversed some, and finished the week +0.72% higher. Profit-taking is the big reason for the price action, but the "Hawkish" comments from ECB members offset some upward pressures on Gold. The ECB may move to increase interest rates in April. If its tightening measures are aggressive enough to generate a move in short-term real rates, Gold may see some negativity on the move.
Gold and Silver The precious metals complex rally was broad based but Gold apparently under performed Silver and PGMs although it hit a new all-time high of 1448.6 oz Thursday. After ending Y 2010 on a Strong note, Gold's price has under performed from the beginning of this year as improvement in risk appetite drove investors to stock markets. The precious Yellow metal gathered up momentum again in late January and has remained Strong since then. Though geo-political tensions in the MENA region have bolstered Gold recently, expectations that inflation in the USA is bottoming have been supporting the metal's price action The US Fed IMO, thought it is pledged to pay close attention to the evolution of inflation and inflation expectations, has no intention to alter its accommodative monetary stance because it believes that the recent upward pressures from commodities is transitory. Negative real interest rates encourage Gold purchases as players look to diversify their cash holdings. Negative real rates are not only seen in the USD but also the GBP, and EUR. With the ECB talking about starting to increase interest rates, Gold may be forced down. But, we believe that the impact may not as big as some fear if the Euro is boosted by widening in USD-EUR yield differentials. Silver was the best performer in the complex with the benchmark contract jumping to a fresh 31 yr high at 38.18 oz Thursday, before settling at 37.05, +5.70%. Silver's price outlook is volatile because the fundamentals are somewhat weak. PGMs rebounded after falling during the past 2 weeks. The outlook there is based largely on the auto sector and its response to Japan's recovery. Industry experts that I have read now estimate Global automakers may lose production of about 600K vehicles by the end of this month, as it is believed that it make take several months before inventories and other parts of the industry are back to normal in Japan.
Crude Oil Crude Oil rallied last week with WTI Crude Oil prices for delivery in May gaining +3.49%, and equivalent Brent Crude prices marked a +1.46% on the week. Consolidation of Brent Crude prices helped narrow the WTI-Brent spread. WTI Crude Oil rallied with prices approaching its 28 month high of 106.95 Thursday. The strength was driven by Strong Oil demand in China and the USA. I believe that now the relations are strained between the USA and its most important Arab ally, Saudi Arabia, and that also worked to boost Crude Oil prices. It was reported that in a telephone conversation with Saudi's King Abdullah, US President Barack Obama asked for 'political process as the only way to peacefully address the legitimate grievances of Bahrainis and to lead to a Bahrain that is stable, just, more unified and responsive to its people'. Previously Saudi ignored the USA's request and sent troops into Bahrain and the King remained angry with USA's abandonment of President Hosni Mubarak during the Egyptian protests. Saudi Arabia is a major Crude Oil supplier to the USA, and according to the DOE/EIA, the Kingdom exported an average of 1M bpd of petroleum liquids to the US, accounting for 9% of total US petroleum imports, in Y 2009. During that period, Saudi Arabia ranked 4th after Canada, Mexico, and Venezuela as a petroleum exporter to the USA. If US-Saudi relations deteriorates more, it is possible that the Kingdom's motivation to calm markets by raising production will be curtailed.
The Overall Technicals
Comex Gold (GC) Gold tapped a new record high at 1448.6 last week, but faded. There is no confirmation of up-trend resumption yet. The initial bias is Neutral this week with the 4 hrs MACD stayed below the Signal line. On the Downside: a break below 1419.5, the minor support, will indicate that the rebound from 1380.7 is finished, and turns the bias to the Southside to extend the consolidation from 1445.7. If that is the case, any Downside should be contained by 1380.7 to conclude the consolidation and bring on a up-trend resumption. On the Upside: a clear and sustained break of 1448.6 will confirm the rise's resumption and target 100% projection of 1155.6 to 1432.5 from 1309.1 at 1480.2 next.
The Big Picture: Gold is comfortably inside its long term rising channel from 681, the Y 2008 low, and there is no clear sign of reversal yet. The weekly MACD is supported by its trend line and Gold is regaining upside momentum. So, in that case, I am staying Bullish as long as 1309.1, Key support, holds and expect the current up-trend to target 1500 psych mark next. But, a clear break of 1309.1 will indicate medium term Topping, and should bring pull back to 1004.5/1227.5, the Key support zone. The Long Term Picture: the rise from 681 is a treated as resumption of the long term up-trend from the Y 1999 low of at 253. 100% projection of 253 to 1033.9 from 681 at 1462 is almost met but there is no sign of reversal yet. So, sustained trading above 1462.6 will likely show the way to the 161.8% projection at 1945.6 in the longer term. Stay tuned...
Comex Silver (SI) Silver rose to 38.18 last week, and the break of 36.74 resistance confirms the up-trend's resumption. Some consolidations might be seen below 38.18, the temporary Top, first though. But, any downside should be contained above 33.565, the Key support, and bring on another rise. A break above 38.18 should extend the up-trend towards 100% projection of 17.735 to 31.275 from 26.3 at 39.84, which is close to 40 psych mark. The Big Picture: the long term up-trend in silver is in progress, and is regaining momentum with weekly MACD back above Signal line. This rally will likely extend further to 261.8% projection at 43.71. A clear break of 31.275 resistance turned support is needed to be the first signal of reversal. Barring that my medium term outlook is Bullish.
The Long Term Picture: Silver's up-trend from Y 2001 low of 4.01 is in progress. I will stay Bullish as long as 21.44, the resistance turned support, holds and would expect such up-trend to extend further to 261.8% projection of 4.01, the Y 2001 low, to 21.44 the Y 2008 high from 8.4 the Y 2008 low at 54.03. Stay tuned...
Nymex Crude Oil (CL) Crude Oil rebounded and tapped 106.69 last week, but fade ahead of 106.95, Key resistance. My initial bias is Neutral this week with 4 hrs MACD staying below Signal line. A clear break below 101.43 will bring on a fall to extend the consolidation from 106.95 IMO. But any downside should be contained by 95.62, Cluster Support, the 50% retracement of 83.85 to 106.95 at 95.40, and then bring on a resumption of the rally. On the Upside: a clear break of 106.95 will confirm the up-trend's resumption for 100% projection of 64.23 to 92.58 from 83.85 at 112.20 next. The Big Picture: the medium term rebound from 33.2 is still in progress, and stronger rise should move towards 100% projection of 33.2 to 83.95 from 64.23 at 114.98. But, there is no change in my POV that such rally is the 2nd wave of the consolidation pattern from that started at 147.27, the Y 2008 high. So, I am beginning to look for reversal signal above 114.98 projection mark. That said, 83.85 the support is needed to be the 1st sign of a medium term reversal and break of 64.23 is needed to confirm that action. Barring that, my outlook is Bullish.
The Long Term Picture: the rebound off of 33.2 may not be finished yet, but my overall POV is unchanged. Crude Oil is in a long term consolidation pattern from 147.27, with its 1st wave completed at 33.2, the 2nd wave is unfolding. A clear break of 64.23, Key support, confirms that the 2nd wave has ended, and the 3rd wave, a downward wave, will have started. Stay tuned...
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Fax: +65 6329 9699 www.ebeling-heffernan.com www.livetradingnews.com www.paul-ebeling.com www.redroadmaster.com Paul A. Ebeling, Jr. writes and publishes The Red Roadmasterâ€™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 Asiaâ€™s fastest growing Advisory Firm and is a Senior Dark Pool FX, Equity and Commodity Analyst at Heffernan Capital Management. www.heffcap.com
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