Gold Continues to Shine in 2008
Gold – The Gold market continues to trade near record highs, buoyed by weakness in global equity markets and the U.S. Dollar. South African mines were forced to shut down in response to the country's largest utility threatening to cut power to miners, sparking a new wave of buying. The shutdown is only expected to close several mines completely for a day, but what is not known is how long it will take miners to get back to full capacity. The market has been on such a tear recently that almost any news on the U.S. economic front can be seen as bullish. If the economy sputters, traders can argue that the Fed will continue lowering rates, devaluing the greenback and opening the door for future inflation. On the other hand, if indicators pick up, the argument can be made that inflation will kick up sooner rather than later and make precious metals a good hedge opportunity. If the FOMC defies the markets and leaves rates unchanged later this week, it could adversely impact the precious metals market in the near term. April Gold broke out to a new contract high close on Friday, but traders would like to see a close above the previous high of 922.50 to offer further confirmation. Momentum is outpacing the RSI, which is bullish in the near term. The 9-day RSI and stochastic indicators are now at overbought levels, so it will be interesting to see how the market behaves in the near term. Support comes in at 908.60, 901.00 and 890.50, while resistance can be found at 926.70, 937.20 and 944.80.
Dow – Stock index futures are poised to open lower as a result of a sharp sell-off in European shares. Banks have been hit especially hard on the heels of the Societe Generale rogue trader fiasco. The scandal hit at a time when portfolio valuations are still difficult to calculate due to the continuing subprime crisis, which has caused another exodus in financials. Additional rate cuts by the Fed later this week have become less certain now after the surprise cut last Tuesday, which has impacted trading. Oil company shares have been impacted in European trading due to price weakness in the commodity and fears that the slowing economy may keep demand in check. Today's new home sales figures are expected to show a decline to 645,000 in December from the November figure of 647,000, according to median estimates. It would not at all be surprising to see the number come in closer to the 635,000-640,000 range. March Mini Dow futures continue to trend lower, and a close above 12,500 may be needed to renew bullish sentiment. Momentum is outpacing RSI, suggesting the market may begin to find some strength in the near term. Support comes in at 12,120, 12,005 and 11820, while resistance can be found at 12,420, 12,605 and 12,720.
Sugar – The Sugar market has rallied sharply in early morning trading, defying a statement by the chief of the International Sugar Organization (ISO) that prices will remain depressed. The group forecasts another year of record production from Brazil, but this may be at least partially offset by indications that the EU and India will trim production. The market is moving higher despite weaker Crude Oil and Corn prices, both of which are key outside markets for the sweet commodity. Today's rally may be a result of short covering after March futures held key technical support levels last week. The daily chart appeared to be forming a technical reversal before holding the key 11.30 mark. A move above the recent high close of 12.45 may result in a continuation of the uptrend. Support comes in at 11.54, 11.13 and 10.86, while resistance may be found at 12.22, 12.49 and 12.90.
Rob Kurzatkowski, Commodity Analyst
