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Gold Continues to Rebound off Technical Support

Commentary: Gold rose modestly for a second day, adding $5.85, or 0.43%, to settle at $1381.53. Like on Monday, the U.S. Dollar fell slightly, and that seemed to be the catalyst for the day’s trading. Prices have also gotten a boost from technical buying after support near $1361 held for multiple days. The themes we are following as they relate to gold price action are the following: 1) the prospect for interest rate hikes in developed economies and how they impact investor demand for gold and 2) investor demand for gold independent of an immediate tightening of monetary conditions (i.e. has investor demand for the metal reached a saturation point?)

Technical Outlook: Prices have mounted a shallow recovery from horizontal support at $1361.39, with the bulls targeting initial resistance at the $1400 figure. A break above this juncture exposes the triple top at $1424.60. Near-term support stands at a rising trend line set from late October, now at $1364.91.

Commentary: Silver settled at $29.52 on Monday after advancing $0.43, or 1.47%, an identical gain to that on Monday. ETF holdings continued to dip, however, declining by almost 1.2 million troy ounces to 480.5 million, over 7 million below the record level set in mid-December.

Silver:

The gold/silver ratio fell to 46.6, but remains above the four-year low near 46 set last month. (The gold/silver ratio measures the relative value/performance of the two precious metals. A higher ratio indicates gold outperformance, while a lower ratio indicates silver outperformance)

Technical Outlook: Prices are drifting higher having after bearish momentum stalled ahead of support at $28.05, the 23.6% Fibonacci retracement of the 8/24/10-1/3/11 rally. The bulls initially target support-turned-resistance at the bottom of a bearish Rising Wedge formation set from early November, now at $30.25, that was broken last week.The 23.6% level remains as near-term support.

Crude Oil Reaches New 26-Month High on Supply Issues

Commentary: Crude oil rallied strongly for a second day on Tuesday due to the same factors that influenced trading in the day before. WTI added $1.86, or 2.08%, to settle at $91.11, while Brent advanced $1.91, or 2%, to settle at $97.61, a new 26-month high. Production in Alaska still remains shut-in due to a pipeline leak, but the latest news is that flows may be soon restarted (at least temporarily) to prevent freezing in the line. In any event, this whole event will may lead to several million barrels of lost production, but will likely have no major, lasting impact. There is always the risk that production stays offline longer than expected though, so until the situation is completely resolved, oil may stay well-bid. Incidentally, there was a temporary outage at a Gulf of Mexico production platform operated by Chevron on Tuesday, but production there was quickly restored.

In the bigger picture, crude oil continues to benefit from robust growth in the global economy and uncertainty with regard to non-OPEC supply. As long as OPEC keeps production restrained as it has been doing, prices will be responsive to these supply disruptions. Nevertheless, at nearly $98, the price has already accounted for many of these bullish factors. The commodity may have difficulty moving into the triple digits until there is more clarity on the outlook for this year’s supply and demand balances.

Tomorrow will bring the DOE report on U.S. petroleum inventories. The API report which is released a day ahead was decidedly bearish, with the industry source reporting a 50K build in crude stocks, a 7 million barrel build in crude stocks, and a 1.6 million barrel build in distillate stocks.

Technical Outlook: Prices have rebounded above resistance at $89.63, the 23.6% Fibonacci retracement of the 11/17/10-1/3/11 rally. From here, the bulls target a retest of January’s swing top at $92.58, a level reinforced by support-turned-resistance at rising trend line set from the swing bottom in November. The 23.6% Fib has been recast as near-term support.

By Ilya Spivak, Currency Strategist  and  Sumit Roy,12 January 2011 04:51 GMT

And here's the vid for the riots:

Crude Oil (WTI) - $89.30 // $0.05 // 0.06%

Commentary: WTI added $1.22, or 1.39%, to settle at $89.25 on Monday, while Brent advanced $2.37, or 2.54%, to settle at $95.70. The differential between the two benchmarks widened to $6.45, the most since the $10.67 record set in early 2009. Brent actually hit a new 26-month closing high, though it did not surpass last week’s intraday high at $96.17.

The catalyst for Monday’s move higher in oil was the shut-in of nearly 95% of Alaska’s crude oil production due to a pipeline leak. All indications are that the leak will be fixed shortly and that there will be no lasting impact on output. Nevertheless, crude put in a strong gain on a day in which commodities generally fell. Now we will wait to see whether the recent congestion high near $96 is broken. A break would likely lead to a test of the key $100 level.

Meanwhile, WTI continues to lag and remain disconnected from the global oil supply and demand dynamics due to an oversupply situation at the NYMEX delivery point, Cushing, Oklahoma. The question now is whether WTI has become a broken benchmark or whether differentials will revert to more normal levels soon. This is a somewhat complicated question to answer, but barring a significant expansion of refining capacity in the region, it looks like these wide differentials may be here to stay. Cushing inventories typically fall from February to March; however, thus we may see differentials briefly tighten when that happens.

Technical Outlook: Prices remain wedged between $89.63 and $87.80, the 23.6% and 38.2%Fibonacci retracements of the 11/17/10-1/3/11 rally. We see the near-term bias as bearish after prices took out support at a minor rising trend line set from the swing bottom in November. A break below current support exposes the 50% Fib at $86.32.

 Gold - $1376.53 // $0.85 // 0.06%

Commentary: Gold put in a modest gain on Monday, rising $6.10, or 0.45%, to settle at $1375.68. The U.S. dollar’s first decline in six sessions seemed to be the catalyst, but the fact that technical support near $1360 has held for multiple days may have played a part as well. Price action continues to be dictated by investor demand.

We argue that the overall strengthening trend in U.S. economic data bodes poorly for gold as it brings closer the inevitable interest rate hikes from the Fed. In that context, last week’s nonfarm payrolls report that was below expectations may be considered in and of itself bullish for gold, especially considering that the labor market has been a key reason why the Fed has kept its policy and bias so decidedly dovish. An important question is whether gold investment demand has reached a near-term saturation point or whether there is still a lot of capital looking to get in.

Technical Outlook: Bearish momentum has stalled above horizontal support at $1361.39 having taken out the rising trend line set from late October. Renewed selling targetsthe 38.2% Fibonacci retracement of the 7/28/10-12/7/10 advance at $1326.50. The aforementioned trend line – now at $1376.50 – has been recast as near-term resistance.

Silver - $29.15 // $0.05 // 0.18%

Commentary: Silver rebounded $0.43, or 1.49%, reversing Friday’s losses. ETF holdings fell 1.8 million troy ounces and are now over 6 million troy ounces off the record level set in mid-December.

Technical Outlook: Downward momentum stalled ahead of support at $28.05, the 23.6% Fibonacci retracement of the 8/24/10-1/3/11 rally. A corrective upswing from here targets support-turned-resistance at the bottom of a bearish Rising Wedge formation set from early November, now at $30.13, initially broken last week.Alternatively, a break below the 23.6% level exposes the 38.2% Fib at $26.08.

By Ilya Spivak, Currency Strategist  and  Sumit Roy 11 January 2011 04:51 GMT 

I suspect that an awful lot of FX traders don’t drift far beyond the hourly charts when it comes to hunting for opportunities but even if you aren’t going to trade them it’s well worth taking a look at what’s out there on the longer time frames.As you can see by looking at the x-axis this is far from a short term chart – but what it does show is where there may be some major breakout points occuring. These types of setups can of course be traded but would require a very large stop loss due to the requirement of absorbing weekly levels of volatility – i.e. huge amounts.

This is the type of chart that would be worth keeping an eye on every few weeks because around the point of the breakout you may be able to establish a shorter term setup that deals in the same direction as the weekly.

Posted on January 11, 2011 by David Land