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Red's Weekend Gold, Silver and Crude Oil Report

11 December 2010

Paul A. Ebeling, Jnr. www.livetradingnews.com

Charts by Omega Research

The Overall Fundamentals

The Precious Metals Complex

The complex retreated last week, giving back gains posted over the past few weeks. Gold rose to a new record high of 1432.5 early in the week, and a correction was triggered by rises in US-Treasury yields. That being the case, a further sell-off cannot be ruled out, but long-term macro-economic outlook should continue to support Gold's up-trend.

Gold demand has been rising steadily in the emerging markets. The Shanghai Gold Exchange reports that, Gold imports in China rose to 209 metric tons in the first 10 months of Y 2010, more than quadrupling 45 metric tons for all of Y 2009.

The Strong demand for the precious Yellow metal is driven by inflationary pressures and the government's measures to curb asset prices.

At the 5th China Gold and Precious Metals Summit in Shanghai last week, participants including Gold producers, traders, exchanges and brokers showed that they were all Bullish on Gold's outlook and believed that domestic demand will continue to rise.

Inflation in China was a Hot Topic and many officials thought that actual inflation has been much higher than what the government announced. Soaring inflation has lifted Bullish sentiment on Gold.

Investment demand for Gold has expanded quickly. While demand in Q-3 Y 2010 rose +16% Y-Y to 153.7 tons, net retail investment accelerated +39% Y-Y to 45.8 tons and jewelry demand rose +9% to 107.9 tons.

As China is expected to continue to deregulate Gold trading, Shayne and I expect more investment products, such as ETFs, will be launched in Y 2011.

We are also Bullish on Silver. Stay tuned...

Base Metals

The base metals complex out-performed energies and precious metals with Copper gaining more than +3% on the week.

On the Upside: views on US economic recovery have turned more optimistic, and growth in emerging market has been strong and is expected to continue.

Advanced economies will continue to adopt accommodative monetary policies to boost growth and the impacts should gradually be revieled.

The launch in physically-backed ETFs should support rallies. The most negative factor in the near-term is further tightening in China but production cut should keep the balance of Copper tight. Stay tuned...

Crude Oil

WTI Crude Oil price rallied to a 26-month high of 90.76 last Tuesday as the possible extension of US rate cuts boosted optimism on the USA's economic recovery. But, selling pressures emerged as USD rose and speculations on China's rate hike weighed on prices.

Over the past weeks, Crude Oil prices strengthened with the front-month WTI Crude Oil contract moving within a range of 80-90, up from previous range of 75-85.

Brent Light Crude futures traded higher with prices settling above 90 for a few days last week.

Shayne and I believe that the rallies in Crude Oil have been driven by improvements in macro-economic outlook and Crude Oil fundamentals.

Global oil demand Q-3 Y 2010 was very Strong and growth was seen in emerging markets such as China.

As we enter the seasonally strong period in Q-4 2010, weather in the Northern hemisphere has been colder than normal and demand will stay high. But, the supply/demand balance may not be as tight as in Q-3 as OPEC may gradually increase output.

EIA, IEA and OPEC published their latest demand forecasts last week. All 3 Oil agencies revised up Global demand for Y 2010 as OECD demand turned out to be stronger than expected over the past few months and cold weather is expected to lift oil consumption towards the end of the year. Demand for Y 2011 is also revised up, but the annual growth rate remained slower than the prior year.

The OPEC is meeting in Ecuador takes place over the weekend, and we expect the cartel will leave production limits unchanged at 24.845M bpd. Note that member countries have been regularly exceeding their assigned quotas. In November, compliance level was 52% according to OPEC and 54% according to IEA's estimate. Stay tuned...

The Overall Technical Outlook

The Weekly Technical Outlook: Comex Gold (GC)

Gold made new record high of 1432.5 last week, and corrected. The break of 1382.9 support indicates that the rise from 1329 is finished, but there is no confirmation of reversal yet.

The initial bias is now mildly to the Southside for fall towards 1350.1, Key support, but Strong support should be seen above 1329 and bring on another another rise. A break above 1401.5 will turn intra day bias back to the Northside for a move to 1432.5 and above, towards 161.8% projection of 931.3 to 1227.5 from 1044.5 at 1449.6.

The Big Picture: the rise from 1155.6 is treated as the 5th wave of the 5 wave sequence from 1044.5, which should also be 5th wave of the rally from 681, the Y 2008 low.

Note: Gold is close to 2 important projection target, 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.

Also, the upside momentum is clearly slowing with Bearish divergence in daily MACD and RSI. Therefore, a reversal should be imminent. A clear break of 1315.8,Key support, will signal that 1424.3 is an important Top and Gold should have started a medium term correction that should send it back into 1044.5/1227.5 support zone.

The Long Term Picture: the rise from 681 is treated as resumption of the long term up-trend from the Y1999 low of 253. 100% projection of 253 to 1033.9 from 681 at 1462 is almost met and a sizeable correction should be next. Nevertheless, even in case of a deep fall, the 55 months EMA, now at 948.3 level, should present Strong support to contain any downside and bring about another up-trend. Stay tuned...

The Weekly Technical Outlook: Comex Silver (SI)

Silver moved higher to 30.75 last week but retraced since then. The fall is contained above mentioned 27.895 support and there is no change in the Bullish outlook in here.

Initial bias remains Neutral this week and further consolidations could come on. But I do expect a break of 30.75 again to resume the up-trend and in that case, Silver the target is the 61.8% projection of 17.735 to 29.34 from 24.98 at 32.152 next. But, a clear break of 27.895, Key support, will indicate that a short term Top is at least formed and deeper decline could then be seen to 26.4 support and below.

The Big Picture: Silver's up trend is intact. The rally from 8.4 is treated as resumption of the rise from Y 2001 low at 4.01. IMO Silver should target 161.8% projection of 4.01, the Y2001 low to 21.44, the Y 2008 high from 8.4, the Y 2008 low, at 36.6 next.

On the Downside: a clear break of 24.98 support is needed to be the 1st signal of medium term reversal outlook will remain Bullish. Stay tuned...

The Overall Weekly Technical Outlook: Nymex Crude Oil (CL)

Crude Oil moved higher to 90.76 last week but turned sideway ahead of 61.8% projection of 70.76 to 88.63 from 80.06 at 91.10.

The initial bias remains Neutral this week and more consolidations will likely come on, and retreat from 90.76 could extend further South, but I expect downside to be contained by 61.8% retracement of 80.06 to 90.76 at 84.15, and bring another rise. A clear break of 90.76 will target 100% projection at 97.93 next.

The Big Picture: the medium term rise from 33.2 is still in progress, and the rally is treated as the 2nd wave of the consolidation pattern that started at 147.27. 50% retracement of 147.27 to 33.2 at 90.24 is already met and there is not sign of Topping in here. I am looking for a further rise to 61.8% retracement at 103.70 and possibly above.

On the Downside: a clear break of 80.06,Key support, is needed to be the 1st sign of medium term reversal and break of 64.23 is needed to confirm that.

The Long Term Picture: that rebound from 33.2 is not finished yet INO. But, my overall view remains unchanged. Crude Oil is in a long term consolidation pattern from 147.27, with 1st wave completed at 33.2, 2nd wave from there is unfolding still. The current action suggests that a breach of 61.8% retracement at 103.70 is likely. But, should it tap at that number I will then start to focus on reversal signal again above 103.70. Stay tuned...

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