Crude oil is making its way toward the psychological $80 barrier, as price action indicates that risks are tilted modestly to the upside. Gold tries to hold up despite continued investor liquidation.Commodities - Energy
Crude Oil Risks Tilted To the Upside
Crude Oil (WTI) $79.12 +$0.14 +0.18%
Commentary: Crude oil is up very slightly after rising 3.9% last week. The primary catalyst for crude’s latest advance is not what has happened, but rather what has not happened. The 26.3% decline in oil prices during May was due in large part to fear. As those worst-case economic fears have so far failed to materialize, the commodity has snapped back to more normalized levels.
Commentary: Crude oil is up very slightly after rising 3.9% last week. The primary catalyst for crude’s latest advance is not what has happened, but rather what has not happened. The 26.3% decline in oil prices during May was due in large part to fear. As those worst-case economic fears have so far failed to materialize, the commodity has snapped back to more normalized levels.
In the bigger picture, crude oil has been largely rangebound, fluctuating between the upper-$60’s and the lower-$80’s since September of 2009. The latest economic scare was enough for crude oil to test the bottom of the range, but obviously not enough to cause any sort of breakdown. At $79, Friday’s close puts crude oil prices above the 50% retracement level of the May correction, or $75.70, indicating that risks are tilted modestly to the upside. The most obvious of those upside risks is the fate of Gulf of Mexico production, but there are also upside risks with regard to demand from emerging markets. Unavoidable is that fact that going forward, higher OPEC production will be necessary to close the gap between ‘free market supply’ (non-OPEC) and demand growth (the vast majority of which is from emerging markets).
Technical Outlook: Prices are holding near the 6/28 highs at $79.38. The pattern of higher highs and higher lows looks to continue, and prices may be poised to test the psychological $80 level next. On the downside, the congestion range between $75 and $78 is initial support.
Commodities - Metals
Gold Investor Liquidation Continues
Gold $1192.68 +$3.48 +0.29%
Commentary: Gold is higher after finished last week essentially unchanged. The interesting thing is that gold ETF holdings have tumbled in that same period. Since the middle of last week, ETF holdings have dropped nearly 500,000 troy ounces, albeit from record levels. Some may interpret the liquidation in ETF holdings as a bullish sign of capitulation within a segment of the gold investor population. Perhaps, but history suggests that while fluctuations in ETF holdings do not necessary translate into gold price declines in the short-term, over longer periods, the correlation between holdings and price is extremely high.
Commentary: Gold is higher after finished last week essentially unchanged. The interesting thing is that gold ETF holdings have tumbled in that same period. Since the middle of last week, ETF holdings have dropped nearly 500,000 troy ounces, albeit from record levels. Some may interpret the liquidation in ETF holdings as a bullish sign of capitulation within a segment of the gold investor population. Perhaps, but history suggests that while fluctuations in ETF holdings do not necessary translate into gold price declines in the short-term, over longer periods, the correlation between holdings and price is extremely high.
Technical Outlook: Prices have so far successfully tested $1175, which corresponds to an upward trendline that extends back to February, and which is also the top of a horizontal support area. On the upside, $1215 is the closest resistance level.
Silver $18.19 +$0.08 +0.31%
Commentary: Silver is up, as the metal continues to mirror moves in gold. The gold/silver ratio has fallen to 65.65 from 66.83 a week ago. The ratio is below the year ago level of 69.15.
Silver $18.19 +$0.08 +0.31%
Commentary: Silver is up, as the metal continues to mirror moves in gold. The gold/silver ratio has fallen to 65.65 from 66.83 a week ago. The ratio is below the year ago level of 69.15.
Technical Outlook: No change from last week: Prices bounced off key horizontal support near $17.50, and are now approaching the recent high of $18.51, which also coincides with the downward trendline. Silver looks to be establishing a descending triangle formation, which many technical traders consider a bearish continuation pattern. Nevertheless, silver will likely take its directional cues from gold rather than any technical pattern specific to it.
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