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Commodities – Energy
Crude Fails at $90 on Profit Taking
Crude Oil (WTI) - $87.66 // $1.03 // 1.16%
Commentary: Crude settled lower for the first time in four sessions, shedding $0.69, or 0.77%, to close at $88.69 on Tuesday. Initially prices got off to a bullish start, hitting the highest levels in 26 months at $90.76, as an agreement was reached to extend for another two years the U.S. tax cuts that were set to expire at the end of this year. But sellers soon emerged to take profits on a sizzling run that had seen oil rise from close to $80 to over $90 in about two weeks.
But the latest action was just that, profit taking, and we are maintaining our bullish outlook for crude oil prices. Inventories continue to decline around the world with floating storage set to completely evaporate in the coming months by some estimates. Furthermore, OPEC supply has held steady despite the recent uptick in prices. Indicating a tightening market, calendar spreads have narrowed significantly, with Brent spread nearing backwardation.
Tomorrow we get a closer look at crude U.S. inventories with the release of the Petroleum Status Report from the Department of Energy. The less-authoritative API survey showed a -7.3 million barrel draw in crude inventories, a +4.8 million barrel build in gasoline inventories, and a +1.7 million barrel build in distillate inventories.
Technical Outlook: Prices have put in a pronounced bearish Shooting Star candlestick below resistance at $90.65, the intersection of the 123.6% Fibonacci extension of the 11/11-11/17 downswing and the top of a rising channel set from late August. A daily close below $88.63 would confirm a near-to medium-term bearish reversal initially targeting the $85.36-$86.61 region.
Commodities – Metals
Gold Drops Back Below $1400 but Trend Intact
Gold - $1393.45 // $8.60 // 0.61%
Commentary: Gold fell back from record highs on Tuesday to end the day down $21.70, or 1.52%, at $1402.05. As we have been saying for awhile now, the tail seems to be wagging the dog in the precious metals complex. We saw silver plunge and that seemed to drag gold lower. Prices are back below $1400 in overnight trade, as they seem to be having trouble staying above that level. So far there have been six days in which gold has settled above $1400.
The big news that continues to reverberate through markets is the fact that China’s gold imports surged over 500% this year. That seems to be explain the disconnect we saw during the middle of this year when gold ETF holdings barely budged while prices soared. China was the missing link. As all these sources of demand come together, they are leading to a perfect storm for continued gains in the precious metals complex. And unlike in other commodity markets, demand seems to be increasing the higher gold prices go thanks to the fact that the marginal buyer is an investor rather than an end-user. Moreover, because these investors are buying with the expectation of no yield, the upside is in many ways arbitrary and unhinged from the considerations of other markets.
Technical Outlook: Prices have put in a well-defined Bearish Engulfing candlestick pattern below resistance at $1424.60, the 11/9 wick high, hinting a move lower is ahead. Initial support lines up at $1385.53, the 14.6% Fibonacci retracement of the 7/28-11/9 advance, with a break below that exposing the 23.6% level at $1361.45.
Silver - $28.89 // $0.22 // 0.75%
Commentary: Silver plunged $1.48, or 4.89%, to settle at $28.67 after surpassing $30 for the first time in 30 years on Monday. While the 1970’s had the Hunter brothers to explain the parabolic rise in prices at the time, the 2000s can point to relentless capital flows into precious metals ETFs. Silver ETFs in particular, saw holdings surge almost 5 million troy ounces to 482.6 million, a new record level.
The gold/silver ratio rose to 48.3, but still remains around the lowest levels since February 2007. (The gold/silver ratio measures the relative performance of the two precious metals. A higher ratio indicates gold outperformance, while a lower ratio indicates silver outperformance).
Technical Outlook: Prices put in a convincing Bearish Engulfing pattern below resistance at $30.39, the 123.6% Fibonacci extension of the 11/9-11/16 decline, hinting renewed selling is ahead. Initial support lines up at $27.88, a horizontal barrier that coincides with a rising trend line connecting major swing lows since late October. A break below that exposes $26.49.
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