Buckshot in the Golden Goose?
Gold – After selling off sharply on Friday, the Gold market has managed to post modest gains in overnight trading on lower equity prices. Friday's PCE Inflation report showed much tamer inflation than previously thought, leading to heavy selling pressure. Lower energy prices combined with stabilization in stock prices and the U.S. Dollar have made Gold somewhat less attractive as an inflation hedge and investment vehicle. The lingering effects of the weak U.S. economy and Crude Oil prices north of $100 a barrel have prevented a larger-scale sell-off in precious metals, and longs seem to be waiting on the sidelines waiting for a recovery in commodity prices. A broad sell-off in commodities in recent weeks – namely in grains and softs – has put heavy downward pressure on the market. The June Gold chart shows that the market remains vulnerable to selling pressure. After making all-time highs on March 17th, prices have collapsed over a three-day period, followed by consolidation. Closes below Friday's low of 928 and 910 would be considered bearish in the mid-term, while advances above 960 could signal a reversal of recent bearish action. Momentum is showing bearish divergence from the RSI, hinting at further weakness. Support comes in at 924.20, 911.90 and 895.90, while resistance can be found at 952.50, 968.60 and 980.80.
Crude Oil – Oil prices are lower for the second consecutive session on news of a truce offer from radical cleric Moqtada al-Sadr, which has eased supply fears in Iraq. The key Basra pipeline was damaged by militants on Thursday, but was repaired by Friday. The truce offer from the cleric will not completely ease tensions over the Iraqi oil supply, and the attack underscores the vulnerability of the country's production capabilities. Recent economic data suggests that the U.S. economy is far from being in recovery mode, which could put further downward pressure on prices. Despite the U.S. slowdown, the past two inventory reports showed larger-than-expected declines in petroleum products and much smaller builds in Crude Oil. The reversal in the trend of large inventory builds and the vulnerability of the greenback suggest that prices could find solid support for the foreseeable future. Technically, the inability of the May contract to attach previous highs is somewhat discouraging, but the market does appear to be forming a bull flag pattern. If confirmed, the bull flag could indicate the market is ready to attack previous highs. Support comes in at 104.34, 103.06 and 101.42, while resistance can be found at 107.26, 108.91 and 110.18.
Rob Kurzatkowski, Commodity Analyst
