Paul Ebeling Gold, Silver and Crude Oil Report Gold, Silver and Oil Report 10 April 2011
Red's Weekly Report on Gold, Silver and Crude Oil + Charts by Omega Research
10 April 2011 Paul A. Ebeling, Jnr www.livetradingnews.com
The Overall Fundamentals Commodities closed higher last week as driven by weaker USD. Strength in Crude Oil prices was led by Brent Crude that broke above 120 bbl and reached as high as 126.91 bbl before settling at 126.65 bbl, up +6.70% on the week. On top of geo-political tensions in the MENA region, fears of a slowing in Crude Oil supply were exacerbated by the delayed elections in Nigeria and strike in Gabon. Nat Gas was weak in both the US and Europe on mild weather demand. In the precious metal complex, Gold rallied to a new record high of 1476.4 oz, and Silver continued to outperform Gold, rising above 40 oz and gaining more than+7% on the week. We here at LTN believe that the White metal will rise to 50 by the end of this year or sooner, and that there is strong evidence that Gold will rise above 1600 oz. The Base Metals also rose despite PBOC' Key interest rate hike. Tin rose to a record, + Copper and Zinc climbed to 1-month highs on optimism about the continuing Global economic growth outlook.
Gold and Silver Gold and Silver prices gained +3.11% and +7.59%, respectively on the week. The recent out performance of Silver over Gold has the Gold/Silver Ratio to 36.07, the lowest level since Y 1983. Strong investment demand has Silver's price higher, and I believe it will continue this year so long as geopolitical tensions, sovereign crisis in the EU peripherals, debt concerns in the US, uncertainties of natural disasters remain a threat to Global economic growth and the financial markets. Rolling 12-mo sales of American Eagles Silver Bullion Coins rose to a record high of 38.68M oz in February, signaling US consumers are worried about the nation's political and financial situations. The White House and the Congress reached a last-minute deal Friday midnight, preventing the government from being closed. But, the parties face heated debates on issues such as raising the debt ceiling, and fiscal consolidation. Fitch Ratings said that it is extremely unlikely that the US will default. But, while the country's AAA rating is maintained, its debt-to-GDP ratio is projected to reach 100% in Y 2012, the highest among AAA-rated countries.
The rating agency expects the US government to make tough choices on tax and spending that are necessary to place public finances on a sustainable path. Weakening fiscal conditions, and expansionary monetary policies are deteriorating confidence on the USD, thus triggering demand for hard assets. Apart from consumers and investors, State governments find precious metals appealing too. As I reported earlier, the State of Utah passed a bill allowing Gold and Silver coin to be used as legal tender. According to Ron Paul, a Republican Congressman and potential Y 2012 Presidential candidate, "the Gold Standard would keep the US Treasury from printing money and destroying the nation's middle class". A committee has been set up to study how Utah residents can pay their taxes with Gold and Silver coins. With the bill passed in Utah, other States that proposed similar measures will likely be approved sooner rather than later IMO. The Base Metals The Complex strengthened driven by the broad-based rally of the commodity sector. Copper gained +5.50% on the week as players become more optimistic after Rio Tinto (NYSE:RIO) said demand in China will 'outpace supply' despite government's tightening measures. After rising to a record of $10160 ton in February, Copper fell below $9000 tom in mid-March as China's imports dropped and the nuclear crisis in Japan raised concerns over the Global economic recovery. But the rebound drove the Red metal back to elevated marks. I do not rule out the possibility for Copper to correct some in the months ahead as stockpiles in China remains ample and Japan may lower imports, the trend will reverse and Copper will resume its rally later in the year. China will continue to be the World's growth engine despite tightening, and with that, demand for Copper will increase as Japan begins its reconstruction. Crude Oil Tensions in Libya rose as NATO claimed last week that fighting between the rebels and government troops caused at least 1 fire at an Crude Oil facility in the region of Sarir'. Mr. Shokri Ghanem, Chairman of state-owned National Oil Corp, said the country's Crude Oil output dropped to only 250-300K BPD from approximately 1.6M BPD earlier this year. It is expected that Libya will be out of the Crude Oil market in the medium-term now. In Nigeria elections were delayed due to logistic issues. Presidential elections and gubernatorial elections will now be held on April 16 and April 23 instead. The postponements increase uncertainties in Africa's largest Crude Oil producer, particularly as polls in Y's 2003 and 2007 were marred by attacks, Crude Oil theft and destruction of Oilfields and production facilities.
Nigeria's Crude is light and sweet quality. The country's exports grades ranged from API 29 or 47 degrees with low sulfur contents of 0.05 â€“ 0.3%. It ships around 40% of its Crude to the USA. With that Shayne and believe Nigerian Crude is similar in quality to Libyan Crude which is mostly exported to Europe. That being the case, any disruption in Crude Oil production in Nigeria will drive Crude Oil prices North in the near term. A 4 day strike in Gabon, sub-Saharan Africa's 4th largest Crude Oil producer, halted production of 240K BPD. While the labor action ended Monday, it too affected Crude Oil prices during this chaotic period. OPEC does not see the need to raise production limits despite the rally in Crude Oil's price. Iraq's Deputy Prime Minister for Energy Affairs Hussain al-Shahristani, a former Oil Minister, said the cartel can do little to rein in Crude Oil prices. He said 'all that OPEC can do is to provide the market with the Crude Oil it needs and it is doing that, the cartel has not seen any slowdown in growth." The hidden agenda there may be that the Crude Oil producing countries are happy to see prices rise According to the Institute of International Finance (IIF), the budgetary break even Crude Oil price for Saudi Arabia, the World's largest Crude Oil producer, will increase from 68 bbl last year to 88 bbl in Y 2011 and then 110 bbl in Y 2015 as the Kingdom increases public spending in an attempt to stem protests. 10 yrs ago, the Kingdom was able to balance its budget with Crude Oil prices at 20-25/bbl. This problem is not only in Saudi Arabia, but also in other OPEC member nations and the rise in Crude Oil prices helps them pay the increase bills. Nat Gas Nat Gas prices fell with US gas losing -7.36% and UK gas down -3.56%. Mild weather is lowing heating and cooling demand on both sides of the Atlantic. In the US, DOE/EIA's report of less-than-expected inventory draw caused further selling. Gas storage fell -45 bcf to 1579 bcf in the week ended April 1. Stocks were -86 bcf less than the same period last year and -10 bcf, or +0.6%, above the 5-yr average of 1569 bcf. Nymex Nat Gas futures trading volume rose to a record of 546 752 contracts last week. Separately, Baker Hughes (NYSE:BHI) reported a drop in Gas rig counts by -2 units to 889 units in the week ended April 8. UK's Nat Gas forward curve has experienced deeper "contango" as the front-end of the curve has been pressured by record LNG shipments to the UK and low demand as a result of mild weather while contracts for farther dates have been supported by Bullish expectations of higher LNG demand from Japan, potential disruption in LNG supply amid geopolitical tensions and prolonged suspensions of gas supply from Libya to Italy.
The Overall Technicals
Comex Gold (GC) Gold's up-trend resumed last week, and reached a high of 1476.4. My initial bias remains to the Northside this week for 61.8% projection of 1155.6 to 1432.5 from 1309.1 at 1480.2 next. A clear break there targets 1500, the new psych mark. On the Downside: a clear break of 1452.6, the Key support, is needed to signal short term Topping action. Barring that my outlook is Bullish even in case of any backing and filling. The Big Picture: Gold's long term up-trend is still in progress, and regaining momentum. That said, I am Bullish as long as 1309.1, the Key support, holds and expect the current up-trend to target 1500, the psych mark next. Further acceleration will show the way to 100% projection of 1155.6 to 1432.5 from 1309.1 at 1586. The Long Term Picture: the rise from 681 is treated as resumption of the long term up-trend off of the Y 1999 low of 253. 100% projection of 253 to 1033.9 from 681 at 1462 is already met, and there is no sign of reversal in here yet. Sustained trading above 1462.6 could lead towards 161.8% projection at 1945.6 in the longer term. Stay tuned...
Comex Silver (SI)
Silver's rally extended to 40.945 last week, and breaks my target of 100% projection of 17.735 to 31.275 from 26.3 at 39.84. My initial bias this week remains on the Northside, and a further rise should now be seen to medium term projection target of 43.71 next. On the Downside: a clear break of 39.20, the Key support, is needed to signal any short term Topping. Barring that my outlook is Bullish even in the light of any backing and filling. The Big Picture: the long term up trend in Silver is progressing, and is regaining momentum with weekly MACD back above Signal line. IMO this rally will likely extend towards 261.8% projection at 43.71. A clear break there targets 50, the new psych mark. In any case, a clear break of 33.565, Key support, is needed as the 1st signal of a reversal. Barring that, my medium term outlook is Bullish. The Long Term Picture: Silver's up-trend from 2001 low of 4.01 is in progress. So, I am Bullish as long as 21.44, the Key resistance turned support holds and expect this up-trend to extend to 261.8% projection of 4.01 (2001 low) to 21.44 (2008 high) from 8.4 (2008 low) at 54.03. Stay tuned...
Nymex Crude Oil (CL)
Crude Oil rose to 113.18 last week and met my target of 100% projection of 64.23 to 92.58 from 83.85 at 112.20. This rally is gaining momentum with daily MACD back above Signal line, and there is no sign of Topping in here. My initial bias remains on the Northside this week for 100% projection of 33.2 to 83.95 from 64.23 at 114.98 next. On the Downside: a clear break of 108.70, the Key support, is needed to be the 1st sign of a near term Top. Barring that, I am Bullish even in case of a pull back. The Big Picture: the medium term rebound from 33.2 is in progress and a Stronger rise should come on towards 100% projection of 33.2 to 83.95 from 64.23 at 114.98. The is no change in my POV that this rally is the 2nd wave of the consolidation pattern from that started at 147.27, the Y 2008 high. That said, I will start to look for a reversal signal above the 114.98 projection mark, and a clear break of 96.22, Key support, is needed to show medium term Topping. Barring that my outlook is Bullish. The Long Term Picture: Crude Oil is in a long term consolidation pattern from 147.27, with 1st wave completed at 33.2, and the 2nd wave unfolding. A clear break of 83.85, Key support, confirms that the 2nd wave is done, and the 3rd wave, a downward one, will have begun. 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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