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Mid Week Report Gold, Silver, Base Metals and Crude Oil 17 February 2011

Red's Mid-Week Gold, Silver and Crude Oil Report Charts by Omega Research

17 February 2011 Paul A. Ebeling, Jnr. The Overall Fundamentals Crude Oil prices rebounded in Euro session after the decline on Tuesday. The front-month contract for WTI Crude Oil price rose to about 84 again and traded at 84.9. Gold continues moving higher after rising over the past 2 days on Global inflation concerns. The World Bank reported that Global food prices are rising to "Dangerous levels and threaten tens of millions of poor people around the World." The rise in food prices is "already pushing millions of people into poverty, and putting stress on the most vulnerable, who spend more than half of their income on food." Rising food prices have been causing inflation to increase faster than previously expected. While emerging countries such as China and India have stepped up tightening to solve the problem, advanced economies have begun to experience rising price levels but are not yet in a rush to find resolutions. In the UK, the headline CPI climbed 0.1% in January from a month ago, as heavy retail discounts offset rises in energy prices and VAT. Nevertheless, the annual rate rose to 4.0% from 3.47% in December. The UK's inflation has exceeded the BOE's target since the beginning of January 2010 and has reached its highest rate since late Y 2008 last month. The GBP's rally is due to the increasing chance of an earlier-than-expected rate hike also signaled inflation worries have heightened. Gold investment looks very attractive as an inflation-hedge, as the central bankers are not unwinding stimulus implemented over the past 2 yrs in order to rescue the Global economy moving out of a deep recession. Pumping too much money into the World economy for too long risks a sharp rise in inflation, and the period appears to be just down the line. Gold has been used as an inflation hedge for centuries, and the metal's purchasing power has returned to a broadly constant level over the centuries, and in different countries. The chart below shows that Gold's return moves roughly in line with US CPI over the past 40 yrs. and Gold's nominal price return was the highest in the environment of high inflation.

The Overall Technical Outlook

Comex Gold (GC) The recovery from 1309.1 is treated as a correction to fall from 1424.4, and is expected to be limited by 61.8% retracement of 1424.4 to 1309.1 at 1380.4. That means that the recovery should be near to completion. A clear break below 1354.3, the minor support, will turn bias back to the Southside for a retest of the 1309.1 low first. But, sustained trading above 1380.4 fibo mark will turn the focus back towards 1424.4, the high, instead. The Big Picture: this current action suggests that a medium term Top is in place at 1432.5 after Gold failed 2 important projection targets; 161.8% projection of 931.3 to 1227.5 from 1044.5 at 1449.6, and 100% projection of 253 to 1033.9 from 681 at 1462. Note: the whole up-trend from 681, the Y 2008 low may have finished a 5 wave sequence. The fall from 1432.5 may now be in progress towards 1044.5/1227.5, the support Zone. On the Upside: a clear break of 1432.5 is needed to confirm the resumption of the up-trend. Barring hat and even in case of a Strong rebound, I expect another fall to extend the consolidation/correction from 1432.5. Stay tuned...

Comex Silver (SI) The intra-day bias in Silver remains to the Northside with 29.635, the minor support intact, and further rise could still come on. Be that as it may, I am treating rise from 26.30 as the 2nd leg of consolidation pattern from 31.275. So, some resistance should be seen above the 31 mark, and bring another fall to extend the consolidation. Silver should lose some up-side momentum on the current rise, and a move below 29.635, the minor support, will turn the bias back to the Southside towards 26.30, the Key support, as the 3rd leg of the consolidation begins. The Big Picture: note that the weekly MACD's place below the Signal line suggests to me that a medium term Top is in at 31.275. This current action indicates that price actions from 31.275 are developing into sideway consolidations. But, as long as 31.275 holds, I expect another fall to 38.2% retracement of 17.735 to 31.275 at 26.103, and below to extend the consolidations. But, any downside should be contained above 22.84, the Cluster support, 61.8% retracement of 17.735 to 31.275 at 22.907, and bring on a rebound. Stay tuned...

Nymex Crude Oil (CL) Crude Oil's decline extended to as low as 83.85, and deeper fall is expected as long as 87.90, Key resistance, remains in place. The break of 85.11, the Key support, served as an early signal of a medium term reversal. The current fall from 92.84 should now be targeting medium term rising channel support at 82.35 next. On the Upside: a clear break of 87.90 is needed to signal short the term bottoming. Barring that my outlook is cautiously Bearish. The Big Picture: IMO Crude Oil lost upside momentum on the mild Bearish divergence condition seen in the daily MACD. This current development augers that 92.84 could be an important Top. Sustained trading below the medium term channel support will confirm this, and deeper decline would come on towards 64.23, the Key cluster support, next, the 50% retracement of 33.2 to 92.84 at 63.02. On the Upside: a clear break of 92.84 is needed to confirm the rally's resumption. Barring that, risk remains to the Southside even in case of a recovery. Stay tuned...

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Gold, Silver and Crude Oil Report  

Gold, Silver and Crude Oil Report

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