Silver Weekly Technical Outlook

Silver took out 28.445 last week and jumped to as high as 30.79 before forming an temporary top there. Initial bias is neutral this week for some consolidation but retreat should be contained above 28.445 support and bring another rally. Rebound from 26.07 should at least be a correction to fall from 37.58. With 38.2% retracement of 37.58 to 26.105 at 30.488 met, the next target will be 61.8% retracement at 33.19.

In the bigger picture, price actions from 26.15 should merely be a consolidation pattern only. Current development indicates that it's still in progress with rebound from 26.105 as a leg. After all, we'd stay bearish as long as 37.58 resistance holds and expect fall from 49.28 to extend lower eventually.

In the long term picture, the main question remains on whether 49.82 is a medium term or long term top. Current development is favoring the latter case. Though, we'd prefer to see sustained break of 61.8% retracement of 8.4 to 49.82 at 24.22 to confirm. Otherwise, price actions from 49.82 could merely be developing into a sideway pattern.

Weekly Fundamentals - Gold Broke Above Resistance on QE3 Hopes

The commodity sector firmed last week with precious metals the best performer. Heightened hopes of further monetary easing from the Fed sent gold prices higher with important near-term resistance broken. The Fed’s August minutes were dovish, indicating further monetary easing highly likely. As the minutes indicated that many members believed that more monetary easing measures should be implemented soon unless upcoming economic data showed "a substantial and sustainable strengthening" in economic recovery. Further monetary easing has now become a matter of "when", instead a matter of "if". PGMs soared as driven by supply disruption in South Africa. Labor strike in platinum mines operated by Lonmin has tendency to spread to other mines and the supply/demand balance will be affected. However, we expect surplus will remain this year. Rally in crude oil prices paused after gaining over the past few weeks. Sanctions over Iran and maintenance in a North Sea field are raising concerns over supply problems. On the demand side, both OECD and non-OECD demand appeared to grow in the third quarter. These all together led to recent strength in oil prices. The WTI-Brent narrowed last week but remained in the double-digit territory. Debates have been on whether the spread will widen further in coming months. In our opinion, further widening seems unlikely as factors sending Brent crude oil prices higher have priced in while the situation in WTI crude is not as poor as perceived. Yet, we expect the spread will continue hovering around current levels.

Crude Oil: Crude oil paused after rallying over the past 3 weeks. However, the outlook remained firm and big correction appears unlikely in the near-term as strong fundamentals remained in place. Maintenance at the Buzzard field has tightened supply in the North Sea. The situation will only improve when it’s completed in September. The North Sea supply has widened WTI-Brent spread in recently. There have been discussions over whether the situation will exacerbate in the fourth quarter. We think this is not likely. Relief in oil supply after maintenance, seasonally weaker crude demand after mid-October and potential SPR release are expected to ease the tight oil market in coming month.

Concerning WTI crude, overcapacity has been the main reason for sending WTI crude oil price below than of Brent. The situation will alleviate modestly as more storage facilities have been invested over the past 1-2 years in Canada, Cushing and the Midwest The sharp fall in WTI crude oil prices due to the Cushing over-stockpiling should not repeat.

Natural Gas: Nymex natural gas price plunged for a 5th week. According to the DOE/EIA, natural gas storage increased 47 bcf to 3 308 bcf in the week ended August 17. Stocks were +423 bcf higher than the same period last year and +357 bcf above the 5-year average of 2 951 bcf. Separately, Baker Hughes reported that the number of gas rigs gained +2 units to 486 in the week ended August 24. Oil rigs fell -17 units to 1 408 and miscellaneous rigs dipped+1 unit to 4 and the total number of rigs was down -16 units to 1 891 units. Directionally oriented combined oil, gas, and miscellaneous rigs slipped -9 units to 229 units while horizontal rigs increased +6 units to 1 159 and vertical rigs slid -13 units to 519 during the week.

Precious Metals: Gold extended the rally last week after breaking above important resistance at 1640. The dovish FOMC minutes for the August meeting raised speculations of QE3. As the meeting was held before release of the July employment report, we believe the next trigger point would be the August report (due September 7), together with the Beige book and Fed Chairman Ben Bernanke’s Jackson Hole address on August 31. However, while it’s likely that further monetary measures would be announced in September, the tool might not necessary be QE3. Judging from the tone in the minutes, policymakers might choose to change the language guidance at that meeting.

Platinum price has rallied more than $150/oz since August 15 as violence at Lonmin mines has raised concerns over production suspension. The spread between gold and platinum has since narrowed. However, it’s uneasy for platinum to regain its premium over gold like 2011 and before. It is because the production losses in Impala and Aquarius Platinum, Eastern Platinum and Lonmin, while evidenced the risks posed by labor actions in South Africa on production, are likely to remove the surplus (supply> demand) in the platinum market in 2012.

Natural Gas Weekly Technical Outlook

Despite a breach of 2.848 minor resistance, there was no sustained buying in natural gas for rebound last week. Instead it weakened again to close the week near to the low. We'd stay bearish in natural gas for the moment, with focus on the lower channel support (now at 2.695). Break will affirm the rebound from 1.902 has completed at 3.277 and bring deeper fall to 2.168 support and below. However, note that it's staying in near term rising channel so far. Break of 2.877 minor resistance will indicate that pull back from 3.277 is completed and will turn focus back to this resistance level.

In the bigger picture, the failure to sustain above 3.255 support turned resistance didn't confirm medium term trend reversal. That is, whole decline from 6.108 could still extend and a break below 2.168 will pave the way to a new low below 1.902. Nonetheless, again, sustained break of 3.255 will confirm trend reversal and a test on 4.983 key resistance level should at least be seen.

In the longer term picture, as long as 3.255 resistance holds, whole down trend from 13.694 (2008 high) is still in progress, so is that from 15.78 (2005 high). Another fall could be seen to 1999 low of 1.62 on resumption. But decisive break of 3.255 will now be an important sign of long term bottoming,

Crude Oil Weekly Technical Outlook

Crude oil rose to as high as 98.29 last week and met mentioned target of 61.8% retracement of 110.55 to 77.28 at 97.84. A short term top could be formed there on bearish divergence condition in 4 hours MACD. Bias is turned neutral for some consolidations first. Note another rally remains in favor as long as 92.94 support holds. Above 98.29 will turn bias back to the upside for 100 and above. However, rise from 77.28 could be the fourth leg inside the triangle patter from 114.83. Hence, we'll be cautious on topping between 100 and 110. Meanwhile, break of 92.94 will be the first signal of reversal and turn focus to 86.92 support for confirmation.

In the bigger picture, price actions from 114.83 are viewed either a three wave consolidation pattern that's completed at 77.28, or a five wave triangle pattern that's still unfolding. In any case, break of 110.55 resistance will strongly suggest that whole rebound from 33.29 has resumed for above 114.83. While another fall could be seen before an eventual upside breakout, downside should be contained above 77.28 support.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

Gold Weekly Technical Outlook

Gold break 1642.4 resistance last week and rose to as high as 1677.5 before forming a temporary top there. Initial bias is neutral this week for some consolidations but downside of retreat should be contained well above 1629.7 support and bring another rise. Current development indicates that fall from 1792.7 is completed at 1526.7 already. Further rally is expected ahead for upper trend line resistance (now at 1770). Though, we'd be cautious on topping there.

In the bigger picture, price actions from 1923.7 high are viewed as a medium term consolidation pattern. There is no indication that such consolidation is finished, and more range trading could be seen. In any case, downside of any falling leg should be contained by 1478.3/1577.4 support zone and bring rebound. Meanwhile, break of 1792.7 resistance is needed to be the first signal of up trend resumption. Otherwise, the consolidation would extend further.

In the long term picture, with 1478.3 support intact, there is no change in the long term bullish outlook in gold. While some more medium term consolidation cannot be ruled out, we'd anticipate an eventual break of 2000 psychological level in the long run

Today's oil price

$96.12 per barrel

Daily change of 0.08 ( 0.08% )
Oil Quote Updated Aug-26-12 10:00 AM