October 2009

Oil’s Rally Stalls as Growth Doubts Creep Back and Speculative Interests Falter

Commodities – Energy

Oil’s Rally Stalls as Growth Doubts Creep Back and Speculative Interests Falter

Crude Oil (WTI) -  $77.06  //  -$2.81  //  -3.52%

After posting its biggest daily advance since September 30th yesterday, crude would undergo a sharp and immediate pullback through Friday trade. Like most other speculative-based assets, oil found and lost its short-lived period of strength through the strong headline 3Q GDP reading. However, given enough time to fully assess the data; the market seems to have come to the conclusion that the return to growth for the world’s largest economy was not significant enough a catalyst to offset the gradual deflation of sentiment that developed through the first half of the week. For the energy complex, the United States’ recovery was largely built on government stimulus that naturally has a short life span. In contrast, consumer demand (outside of the ‘cash-for-clunkers’ program) was reserved and presents little appetite for demand (be it for gasoline or products that require fuel to manufacture). Today’s event risk further depressed projections for demand.  Personal spending for the month of September dropped 0.5 percent as expected – the sharpest drop this year.

Whether crude develops is bearish ambitions in the week ahead will largely rest with the health of risk appetite and the pace the US dollar sets. In the background, fundamentals for the vital commodity argue for a significantly lower price. This past week, the US Energy Department reported increases in crude (0.23 percent) and gas (0.78 percent) while the EIA detailed a 0.67 percent increase in natural gas stockpiles. Ultimately, these are just modest increases to already sizable surpluses; but it nonetheless draws a distinct comparison to supply and demand imbalances. On tap today, a few headlines were giving energy prices a rise. The United States second largest oil producer, Chevron, reported a smaller than expected 3Q drop in profit thanks to the biggest increase in output since 2005. This effort to offset the low prices that developed through increasing volume is not unique to this firm and offers a key component to the current inventory glut. In other news, Baker Hughes reported US active oil rigs grew by 18 for the seventh weekly increase to a January high of 330. Also, AAA said the average price per gallon for unleaded gas in the US rose to a new high for the year of $2.695.

Commodities – Metals

Gold and Silver Mark Sharp Bounce on Rebound in Risk Appetite

Spot Gold  -  $1046.10 //  -$0.90  //  -0.90%

The sharp reversal in risk appetite Friday was tangible for most asset classes; but gold’s decline seemed to be more reserved than some of its counterparts’ performances. Most notable was the discrepancy between crude and gold. While oil has a fundamental demand imbalance weighing on its high price, gold is pushing record highs and almost exclusively due to speculative demand. The unwinding associated with profit taking would theoretically lead to an exaggerated decline in the metal; but instead, we see volatility and the market-wide shifting in funds towards safety has refreshed gold’s value as a safe haven. This is an uncertain balance; but should the deteriorating in sentiment continue, the commodity’s near-record high will push in due course push prices in one direction: down. In the meantime, SPDR Gold Trust reported it left its holdings unchanged at 1,104 tons, ending a three consecutive days of reductions.

Spot Silver  -  $16.37  //  $0.32  //  -1.89%

Silver does not have the long-term safe haven appeal than gold does; and we could see this fact born out in a comparison of price action between the two metals. While the more expensive security would look to close the day nearly unchanged, silver was deep in the red. The sharp rally in optimism yesterday following the US GDP release was quickly unwound today as traders fell back into the trend that was developing through the first half of the week and growing more skeptical of the disparity between sentiment’s astronomical rise and otherwise disappointing fundamentals. As the cheap alternative to gold (and without the safety attributes), restoring silver’s rally will depend on a recovery in risk appetite next week.

-Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

Stocks in Asia/Pacific Surge on Earnings Outlook, Better-Than-Expected Economic Data

Asia Session Key Developments

• BOJ Holds Interest Rates at 0.10%; To End Corporate Debt Purchases
• Japan’s Jobless Rate Unexpectedly Falls in September
• Australia’s Private Sector Credit Declines for First Time in 9 Months

Stocks in Asia/Pacific traded higher on Friday amid the better-than-expected U.S. GDP data paired with the rebound in commodity prices. Nevertheless, the economic docket showed the jobless rate in Japan unexpectedly fell in September, with the annualized rate slipping to 5.3% from 5.5% in the previous month, while household spending increased 1.0% during the same period, At the same time, consumer prices weakened at an annual pace of 2.2% for the second consecutive month in September, with the core rate of inflation slipping 2.3% amid expectations for a 2.4% drop, and the data reinforces a mixed outlook for the world’s second largest economy as policy makers see a risk for a protracted recovery. Nevertheless, the Bank of Japan kept the benchmark interest rates at 0.10% while voting to end its corporate debt purchases at the end of this year as financial conditions improve. In addition, the central bank voted 7-1 to end purchases of commercial paper and corporate bonds from lenders.

Nikkei 225                          10,034.74

The Japanese equities market traded higher on Friday after declining for three consecutive days, leading the Nikkei to gain 143.6 points (1.45%) to end the day at 10,034.74, led by a 2.34% advance in health care. Meanwhile, shares of Olympus Corp soared 9.23% amid speculation that the company may narrow its expected decline in operating profit from April to September, beating analysts’ estimates by 50%, with Pioneer Corp, the maker of car-navigation systems, climbing 6.94% as the company contracted its full-year net loss outlook from 83 billion yen to 59.5 billion yen. Moreover, TDK Corp, the world’s largest maker of magnetic heads, rose 6.37% as the company boosted its operating profit forecast, while Nippon Mining Holdings and Nippon Oil advanced 5.33% and 1.80% respectively after the firms signed an agreement to merge in April 2010.

Hang Seng                        21,752.87

Hong Kong shares rallied on Friday, with the Hang Seng marking the largest percentage gain in Asia/Pacific after climbing 487.88 points (2.29%) to close at 21,752.87 as all 9 components trading higher on the day. Bank of China and Industrial & Commercial Bank of China advanced 5.77% and 3.45% respectively as both firms posted better-than-expected earnings for the third quarter, with Cnooc advancing 4.52% on the back of higher commodity prices. At the same time, shares of China Resources Enterprise, the local partner of SAB Miller, soared 8.62% subsequent to the company announcing that it will buy Home World hypermarket and a brewery from its parent and sell off other assets, while Henderson Land Development climbed 7.51% after Chairman Lee Shaukee stated that he was buying land on speculation that the nation’s efforts to curb home prices will not be effective.

S&P/ASX 200 Index           4,643.20

Stocks in Australia traded higher on Friday following the sharp decline during yesterday’s trade, leading the S&P/ASX 200 to advanced 68.50 points (1.50%) to end the day at 4.643.20, with industrials gaining 1.92% to lead the rally. Shares of Crane Group Limited slid 12.23% as the company held a weakened outlook for future profits, while Macquarie Infrastructure’s share price increased 5.86% as the road, bridge and tunnel investor’s board proposed to split the firm into two separate entities. At the same time, Babcock & Brown Infrastructure climbed 5.71% as the company said Brookfield Asset management will surrender its claim on the company’s transmission and distribution facilities, along with its Australian energy, while Woodside Petroleum added 2.16% following the rebound in crude oil prices.

Notable Asian Session Event Risk / Economic Releases

Downside Risks Remain For Dow As it Targets Trendline Support

As is often the case in Elliott, the picture is becoming much clearer as the rally has matured and nears its end.  The advance from the March low is a complex W-X-Y (a-b-c-x-a-b-c) rally.  The Dow has actually satisfied minimum expectations for the rally by exceeding 9918 (wave iii of c) so a reversal could occur at any time.  Wave c of y would equal 61.8% of wave a of y at 9947.  Momentum is as one would expect at an important top with RSI failing to confirm the new price high.

The Dow found support yesterday but unless we see a break back above 10,000 we continue to favor a test of trendline support near 9,650. A move back above the psychological level would lesson our conviction for the bearish bias with a break above the yearly high of 10,119 making the case for a bullish outlook.

The S&P is in the exact same position as the Dow. The analysis presented there applies here.

The S&P 500 bounced from trendline support at 1,042 which could lead the broader index to look to test 1,120-50.0% Fibo of 1,576-666. However, with downside potential remaining for the Dow, we could see the S&P 500 bounce along the trendline until the next catalyst.  A break below exposes 978-8/17 low.

The NASDAQ pattern is the same as the Dow and S&P patterns with one exception – this index has yet to exceed its September high.  It’s interesting that the NASDAQ is the weaker of the 3 indexes at this point since it is the one that has led the advance since March, retracing a larger percentage of its 2007-2009 decline.  It is possible that the divergence (new highs in Dow and S&P, not in NASDAQ) sets up a non-confirmation that results in a turn lower.  In Elliott terms, failure to exceed iii of c would constitute a truncation.

The NASDAQ found support after breaking below trend line support at former resistance at 2,063 the 50.0% Fibo of 2,861-1,265. A break below the level  would expose 1,929 the 8/17 low. A test of 2,250- 61.8% Fibo of 2,861-1,265 may follow if support holds.

Oil, Metals Likely to Retrace Lower to End Trading Week

Commodities – Energy

Crude Likely To Retrace Spike After US Q3 GDP Report

Crude Oil (WTI)       $79.74       -$0.13       -0.16%
As we expected, the release of US Gross Domestic Product figures forced a bullish correction in oil prices as the world’s largest consumer of crude posted the first quarter of positive growth in a year. The extend of the rally has been markedly more pronounced than expected though, with the WTI contract blowing through support-turned-resistance near $78.17 to come up for a test of the $80 level. September’s Personal Income and Spending figures are on tap tomorrow with monthly declines expected on both fronts. Between this and the fact that the GDP outcome has now had ample time to be digested, it seems unlikely that traders will see too much bullish follow-through. Third-quarter earnings from Chevron Corp present a wild card, but US equity index futures are firmly lower trading down -0.5% so absent a very impressive figure, profit-taking is likely. A pullback sees near-term support above the $78 mark.

Commodities – Metals

Gold, Silver Position to Turn Lower After Post-GDP Advance

Gold       $1045.50       -$1.50       -0.14%
As with oil, gold prices got a boost from the third-quarter US GDP report and surged higher to re-test support-turned-resistance at the bottom of the range that had contained prices for most of the month (near $1045-$1050). Also in line with crude, prices are likely to come off on the back of US data and a bit of profit-taking into the end of the week. Equity index futures are trading lower ahead of the opening bell in Europe, bolstering the near-term bearish scenario.

Silver       $16.58       -$0.10       -1.60%
Silver technical positioning looks much cleaner than that of oil or gold: Prices bounced from support just above $16 to neatly re-test resistance at $16.75 and are now showing a Bearish Engulfing at this juncture. A move back down towards $16 looks very plausible from here.

Asian Equity Patterns Scream Reversal

Asian equities may be in a precarious position as suggested by patterns in the Nikkei 225, Hang Seng, and ASX 200.

Nikkei 225

The Nikkei 225 appears most bearish.  Japan’s most important equity index broke from a multi month channel in September on a breakaway gap.  That gap was filled earlier this month when the index was forming what may be a head and shoulders tiop.  The 50 day SMA is above price and sloping down now.  The index is at risk of a downside break.  Under 9629 exposes 9050.

Hang Seng Index

Hong Kong’s Hang Seng is nearing the support line from an ending diagonal (also known as a wedge).  An ending diagonal occurs following a move that’s gone ‘too far, too fast’.  Clearly, the Hang Seng’s Spring and Summer rally fits that description.  The implications are bearish and suggest a return to 17,186 (beginning of diagonal).  The declines that succeed completion of a diagonal are usually sharp. 

S&P ASX 200

After stubbornly riding along its upper channel line, Australia’s ASX 200 turned down in impressive (for bears) fashion.  Still within the 7+ month upward sloping channel, we can’t say for sure that a top is in place, but the RSI divergence leading up to the reversal is typical of important tops.  Structurally, the advance counts well as a complex a-b-c-x-a-b-c (properly labeled w-x-y) correction.  Waves w and y are nearly equal (32.7% and 32.0% rallies respectively).  The next supports are 4261 and 4079.

Oil Rebounds after Strong US GDP Brightens Demand Outlook

North American Commodity Update, Last Updated 10/29/2009 5:20 PM EST (GMT = EDT +4:00)

Commodities – Energy

Oil Rebounds after Strong US GDP Brightens Demand Outlook

Crude Oil (WTI) -  $79.96  //  $2.50  //  3.23%

Just as crude was starting to ease into a meaningful trend reversal, a boost in speculative interests has put a floor under the market. Already working on retracing some of its losses over the past few active sessions, oil’s advance was accelerated after the release of a strong third quarter growth report from the US. An annualized 3.5 percent pace of growth for the world’s largest economy both beat expectations and marked the fastest pace of expansion in two years. Furthermore, the component data shows that consumer spending rose at the fastest pace in two years, durable goods orders jumped the most since 2001 and inventories fell once again following the record contraction in the second quarter. All of this points to increased production going forward and thereby building demand for crude oil. Yet, these more distant forecasts were less influential in today’s price action than the general impact on current levels of sentiment. Bulls have been in control of the market for more than seven months; and this data was a good benchmark to revive risk appetite, which was recently buffered.

How far crude’s rebound can last depends on how much momentum optimism can build off of today’s positive GDP number. If this spark can restart demand for yield and capital gains, crude can revive its trend after having suffered only a very mild pullback. On the other hand, should speculative interests die down, supply/demand fundamentals will work towards pulling oil prices down to a level that more closely matches a reasonable outlook for demand. The US Energy Information Administration (EIA) reported a 0.67 percent increase in natural gas stockpiles, adding to the 0.23 percent increase in oil and 0.78 percent rise in gasoline inventories reported by the DoE yesterday. Along with the weekly data, the EIA reported crude reserves through the end of 2008 fell 10 percent as the plunge in prices and deep recession discouraged refiners from taking the responsibility for the glut. In other news, the weekly UK Tanker Tracker Oil Movements data reported OPEC was boosting shipments in the month though November 14th 0.2 percent to 22.68 million barrels per day.

Commodities – Metals

Gold and Silver Mark Sharp Bounce on Rebound in Risk Appetite

Spot Gold  -  $1045.60 //  $17.50  //  1.68%

Risk appetite rallied through Thursday’s session and the search for return brought investors right back to gold. The precious metal responded to the recovery in the US economy and subsequent plunge in the US dollar. On a trade-weighted basis, the greenback fell 0.6 percent for the first daily loss in five. From a valuation perspective, the plunge in the benchmark for price has a direct impact. However, beyond that, we can see that spot gold priced in other currencies was still strong for the session. Investors are naturally attracted to the metal’s high volatility and its proximity to record highs. However, pushing such highs means there must be consistent strength in underlying sentiment to maintain the asset’s buoyancy. At such heights, further capital returns for bulls will be more difficult to produce as there are fewer large pools of money willing to enter the market at these levels. Along these lines, SPDR Gold Trust (the world’s largest gold-backed ETF) reported a third consecutive 1.22 ton drop in its holdings to 1,104.43. What’s more, natural demand is strangled by such costs. The Bombay Bullion Association – an Indian trade group – projected a sixth monthly decline in gold imports for India (one of the largest consumers of the commodity) through October.

Spot Silver  -  $16.68  //  $0.54  //  3.28%

Like the rest of the metals group, silver was put on an aggressive rally after the US GDP release. Demand was fed by speculative interests that was looking for more buying power than silver’s pricier counterparts. What’s more, from a trader’s perspective, this commodity has more room to run in retracing the losses through rest of the week and is still well off the ceiling of a record high. Reflecting investor demand, ETF Securities reported its holdings of the precious metal rose 15,197 ounces to a record 21.414 million. Should this tentative rebound in risk appetite gain traction; silver will likely mark the pace.

-Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

Stocks in Asia/Pacific Battered on Falling Commodity Prices, Tightening Credit Standards

Asia Session Key Developments

• Australia’s Leading Indicator Improves, New Home Sales Falter
• Japan Industrial Outputs Rise for Seventh Month in September

Stocks in Asia/Pacific traded lower on Thursday subsequent to the massive sell-offs on Wall Street, with the ASX tumbling 2.36% on the day to mark the biggest decline in four months. Meanwhile, the Conference Board Leading for Australia improved at a faster pace in August, with the index climbing 1.8% after rising 1.0% in the previous month but at the same time, the HIA new home sales data posted the largest decline since May as the index tumbled 4.5% after jumping 11.4% in August. Moreover, industrial outputs in Japan improved for the seventh month in September, with productivity increasing 1.4% from the previous month, while the annual rate of production fell at a slower pace from August, and the data reinforces an enhanced outlook for the economy as policy makers see the nation emerging from the worst recession since the post-war period.

Nikkei 225                          9,891.10

The Japanese equities market traded lower for a third successive day and is at its lowest level in two-weeks, leading the Nikkei 225 to shed 183.95 points (1.83%) and end the day at 9,891.10, led by a 2.86% drop in oil & gas. Shares of Advantest Corp, the world’s biggest maker of memory-chip testers, fell another 6.56% on top of yesterday’s 5.15% decline after the company posted a second-quarter losses rose more than expected, Nippon Mining Holdings, Japan’s largest copper producer, slid 3.68% on the back of lower commodities and releasing a preliminary earnings statement in which the company said first-half net income will miss projections by 18%. Moreover, Bridgestone Corp fell 4.59% subsequent to Goodyear Tire & Rubber Co forecasting an operating loss in North America, while Japan Airlines advanced 2.68% as the Nikkei English Newspaper said the government may enact new legislation in an effort to speed up the restructuring of the firm.

Hang Seng                        21,761.58

Hong Kong shares weakened for a third day, with the Hang Seng plummeting 496.59 points (2.28%) to close at 21,264.99 as all 9 components traded lower for a second successive day. Shares of Bank of Communications, China’s fourth-largest lender by market value, plunged 5.39% after third-quarter profit missed analysts estimates, while PetroChina tumbled 4.02% as oil fell for a second day subsequent to rising U.S. crude and gasoline inventories in the U.S. At the same time, Wharf Holdings push backed 3.60% after trading to the upside on speculation the China Banking Regulatory Commission will continue to tighten credit standards to temper the rise in home values, with shares of Sino Land Co declining 2.57%.

S&P/ASX 200 Index           4,685.10

Stocks in Australia traded lower for the fourth consecutive day on Thursday and marked the biggest one-day decline in 4 months, causing the S&P/ASX 200 to plunge 110.48 points (2.36%) to end at 4,574.70, with basic materials shedding 3.59% to lead the decline. Shares of Sundance Resources and Woodside Petroleum tumbled 9.38% and 3.51% respectively on the back of lower commodities, with Rio Tinto shedding 4.87%, while Australia & New Zealand Banking Group slipped 2.14% following an 11% drop in full-year net income. Moreover, ANZ’s Chief Executive Officer Michael Smith held a cautious outlook for the economy and said that the Reserve Bank of Australia should have waited to tighten policy, while Goodman Group traded 6.67% lower after being up during early morning trading even after Goldman Sachs raised the company’s rating on the stock to “buy” from “hold” earlier this week.

Notable Asian Session Event Risk / Economic Releases

Oil, Metals Position to Correct Higher, US GDP Likely Catalyst

Commodities – Energy

Crude May Bounce as Prices Hit Strong Support Ahead of US GDP Report

Crude Oil (WTI)       $77.54       +$0.80       +0.10%
Oil has continued to push lower, breaking below $78.17 to find support above $76.82 as expected. A falling trend line connecting recent lows bolsters the barrier at this juncture and traders may see a push to re-test above the $78 mark before bearish momentum resumes in earnest. The only fundamental catalyst really worth looking at is the US third-quarter GDP release; expectations call for output in the world’s largest economy and crude consumer to rise 3.2%, the first positive outcome since the three months to June 2008. The release will serve as proxy gauge for the health of the global economy as a whole, guiding the trajectory of the risk (stocks, commodities, high-yielding currencies) vs. anti-risk (US Dollar) dynamic that has served as the primary market theme for much of the past 12 months.

Commodities – Metals

Metals Positioning Supportive of Correction, US GDP Seen as Catalyst

Gold       $1034.05       +$5.95        +0.58%
Gold prices broke lower from consolidation above $1037.03 but near-term support has been found at a falling trend line connecting recent lows. A push higher to re-test support-turned-resistance seems plausible, especially considering the RSI oscillator is showing positive divergence with the latest lows. As with oil, the US third-quarter GDP report is of prime importance fundamentally.

Silver       $16.31       +$0.17        +1.04%
Silver prices look like an over-exaggeration of the move seen in gold, with prices racing sharply lower to find near-term support just ahead of the $16.00 figure. Momentum studies are now in oversold territory and divergent with the most recent lows, hinting that a correction towards $16.50-16.60 may be ahead before further losses materialize. Fundamentally, the US GDP report overrides any other considerations in the near term.

U.S. Equities Continue Their Descent

U.S. Session Key Developments

• Commodities Take a Hit as Dollar Recovers
• Decrease in New Home Sales Adds to Concern Over Economic Recovery

U.S. equities closed lower for a fourth consecutive day as investors once again fled risky assets such as stocks and commodities for the safety of the U.S. dollar and Treasury securities.  The greenback gained against all of its major crosses except for the Japanese Yen, while the U.S. Treasury continued to find great demand for its debt securities.  Equities around the globe fell as the MSCI World Index of 23 developed nations shed 2.1 percent.  In the morning session, an unexpected decrease in new-home sales by 3.6 percent in September added fuel to investor concern that the seven-month equities rally has outpaced economic fundamentals.  Home builders Lennar Corp. and D.R. Horton dropped over 5.8 percent each on the housing news, while Exxon Mobil and Chevron fell on a drop in crude prices.  Holding up U.S. equities from free-fall is positive news out of earnings season where 82 percent of the companies in the S&P 500 to report earnings have beaten expectations.  Looking forward, all eyes will be on Thursday’s report on third-quarter gross domestic product in the U.S.  Goldman Sachs today cut its forecast for third-quarter U.S. GDP growth to 2.7 percent from 3 percent.

DJIA 30                 9,762.69                   -119.48                         -1.21%
The Dow Jones Industrial Average fell hard after posting a slight gain in yesterday’s session.  Alcoa and Caterpillar were two of the weaker components as they fell 6 percent and nearly 4 percent respectively due to demand concerns that weakened commodities prices.  Telecommunications were once again the bright spot of the index as Verizon added 2 percent and AT&T added a percent.

S&P 500                  1,042.63                    -20.78                          -1.95%
The S&P 500 traded lower as nine of its ten sectors traded fell on the day, with telecommunications the lone exemption.  Overall, eight stocks fell for each that gained and investors showed concern over the strength of the economic recovery.  Discretionary goods had another down day while the financial sector and basic materials sector each dropped over 3 percent.

NASDAQ                 2,059.61                    -56.48                        -2.67%
The tech-heavy NASDAQ was once again the worst performing index, falling over 2 percent.  Apple, Microsoft, and Intel stock all fell over 2 percent on the day.  Apollo Group shed nearly 18 percent on news of a legal suit that could cost the firm over $80 million.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com

Oil Extends Its Declines after a Report that Crude and Gas Inventories Ballooned Last Week

North American Commodity Update, Last Updated 10/28/2009 4:07 PM EST (GMT = EDT +4:00)

Commodities – Energy

Oil Extends Its Declines after a Report that Crude and Gas Inventories Ballooned Last Week

Crude Oil (WTI) -  $77.18  //  -$2.37  //  -2.98%

The fundamental pressure is building up against crude’s impressive run these past three weeks; and the market has taken the next step in a meaningful reversal. Pulling below the accepted support level of $78, the active futures contract is now forging near two-week lows and further encouraging speculative interest to book profits now and further fan the flames. Investor sentiment has broadly soured today with equities and commodities easing while the dollar recovers through its safe haven status. In this pullback, we will see how much impact risk appetite truly had in the oil’s (and broader market’s) rally these past weeks and months.

Supply and demand fundamentals offered an opportunity to stand in as a back stop to speculative flows today; but inventory data would end up feeding bearish sentiment. Yesterday afternoon, the API stockpiles report for last week offered a tentative, bullish outlook. According to the US industry group, crude stores plunged 3.532 million barrels and gasoline inventories dipped 255,000 barrels. Alone, this may have stalled the developing decline; but traders’ real interest was in the Energy Department numbers. In contrast to the API numbers, the DoE reported increases in both crude and gasoline inventories. Oil holdings rose 0.23 percent or 778,000 barrels (against a Dow Jones forecast of a 1.7 million); while gasoline stores unexpected rose 0.78 percent or 1.62 million barrels to halt the previous two weeks’ sharp declines. At the same time, demand for gasoline reportedly fell 92,000 barrels over the same period. This is further evidence that the glut of inventory floating in the market will not easily be absorbed given the current pace of US and global economic activity.

Aside, from the weekly supply data; the energy block was accounting for some earnings releases and OPEC commentary. From the corporate side, Conoco Phillips reported third quarter earnings that beat expectations while Petrochina said its revenue missed the market consensus. Both Iranian and Iraqi officials were offering marks that could have bolstered oil prices had inventory data not stole the scene. Iranian OPEC Governor Khatibi said in comments that current price levels would not harm the economic recovery and they could in fact rise further. He went on to suggest the higher price was a sign of better economic conditions, reversing the sense of cause and effect that many others have taken to the commodities appreciation. At the same time, after reporting national crude exports of 58.7 million barrels through September, Iraqi Oil Minister Hussein al-Shahristani said heating oil stocks were sufficient for the winter season.

Commodities – Metals

Gold Hits a Three-Week Low and Silver Maintains Bearish Momentum as the Dollar Strengthens

Spot Gold  -  $1027.50//  -$12.55  //  -1.21%

The reversal in metals is gaining momentum; but gold was looking at one of the more reserved losses among the precious metals group. While the popular commodity can attribute much of its rally this year to speculative interests in search of capital gains, gold is also considered an alternative safety currency. So, while the metal may lose ground against a more clear-cut reserve like the US dollar; it is still considered a better haven to financial storms than many other securities (like stocks, bond funds, etc). However, the heights that this asset has climbed against nearly every backdrop is hard to ignore. Should profit taking and risk aversion flows pick up steam, gold will certainly be one of the losers. In the meantime, the CBOE’s Gold Volatility Index stands at 20.6 percent – a relatively staid level compared to past weeks, but the frequency with which volatility has changed (a sign of surprise and instigation of large moves) is actually the most stable it has been since August. Concurrent with the developing reversal, the SPDR Gold Trust (the largest ETF backed by gold) reported holdings of the precious metal fell 1.22 tons a second consecutive day to 1,105.65 tons yesterday.

Spot Silver  -  $16.18  //  -$0.53  //  -3.17%

While gold has been able to dampen its losses, silver has taken to a third consecutive daily plunge. The cheaper precious metals doesn’t hold the safe haven appeal that its primary counterpart has maintained through countless generations; and the shift in sentiment has therefore has had a more acute impact on price action. With today’s performance, silver has developed its worst performance since the 17 percent, single-day plunge back on October 10th of last year. Tomorrow’s US GDP numbers will help to benchmark growth and could thereby redefine risk appetite.

-Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

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