16th December Oil and Gold overview
16th December 2009
Commodity Overview
Focus on Oil & Gold
Over the last 7 days we have seen oil continue to trend lower in-line with the rally in the USD. The market briefly pressed down below the $69.00 handle, and has since bounced back to the $71.00 mark. During the same time gold has also traded sharply off its recent record highs of $1226.56 to briefly print down to $1111.00.
Thoughts from the trading floor
From a technical perspective oil futures have re-entered the ‘congestion’ (or value) area that the market had been in during the 3rd quarter. Strong up-side resistance should lie at $72.42-$73.00, which is consistent with the levels that are being traded in the USD. The lows of the value area are around the $65.00 mark, which should provide strong support on initial probes lower. Technically, the gold market seems fairly interesting at the moment. The price action from recent highs bears remarkable similarity with the oil peak of 2008. If the USD continues to trend higher, and gold market mirrors this move, we would favour the recent all-time $1226.56 highs to remain intact. The nearest resistance level is $1138.10-$1140.00, which may be tested soon.
Last night the American Petroleum Institute reported that US inventories gained 924K barrels last week. This compares to the analysts estimate for the DOE number of a 2000K barrel drawdown. The API Gasoline showed a build of 2074K opposed to the estimates for the DOE number of +1300K. In past occasions when we have seen such a large discrepancy between the API number and DOE expectations we have seen the market has moved prior to the number as traders try to anticipate the release. This provides a short term trading opportunity but it is important to note the biggest moves off the headline number have come when it has been at odds with the API.
Gold has suffered in the last few days as a flight into USD has resulted in significant weakness. It may be too early to call a burst of the gold “bubble”, however it is worth bearing in mind that when a financial phenomenon spills over into everyday society the market trend has already started to mature. Today’s FOMC rate decision may have a significant bearing on the short-term outlook of the USD. Thus we could have some volatility in the Gold market going into year end. As gold has become synonymous with risk appetite during this run up, a sharp turn in risk trades early next year may present an opportunity to enter into a ‘blockbuster’ short position.
Bull View
Oil bulls will be keen to get the market back above $73.00 as this would open the door for a recovery back to the $75.00-$77.00 area. Their number one concern will be the USD continuing to strengthen. Gold bulls will also require the USD to turn around from these levels and need to push back up through the recent all time highs of $1226.56 to reassert control.
Bear View
Bears will feel they now have an opportunity of a turnaround; they will be targeting a break of support at $65.05. This may be the final nail in the coffin for those bullish participants who have been ignoring weak economic fundamentals. Gold bears will cite a strengthening of the USD as a turn from its recent bear trend. This may catch out large institutional sellers of the USD who have been most vocal about selling the USD during recent months.
Futex View
We believe that Oil and Gold markets are still strongly linked to the USD performance and this will provide the best indicator of performance. We do expect that the USD will strengthen over the next few months but some patience in the next couple of weeks may be required.
