silver

Has Crude Taken the First Step Towards a Breakout and Reversal?

North American Commodity Update

Commodities – Energy

Has Crude Taken the First Step Towards a Breakout and Reversal?

Crude Oil (LS NYMEX) -  $81.21   //  -$0.90  //  -1.10%

Volatility perked up modestly for the active NYMEX crude contract Friday such that the market would test a new eight-week high of $83.16 before reversing course and potentially forging a bearish breakout. With the week’s close pulling the market below a trendline that has guided the commodity upward for over a month now, a speculative barrier has been removed. What is needed now is momentum; and such conviction will likely come through risk appetite itself. As it stands, the market’s level of activity (measured through the rolling 20-day average daily range) is still near its lowest level since September of 2007. However, the CFTC’s Commitment of Traders figures reported a 17,897-contract increase in net long speculative positioning through the period ending March 9th. Furthermore, aggregate open interest for the commodity on New York futures exchange has steadily climbed to its highest level since June of 2008. Interest is building; but market participants are awaiting a clear bearing before committing. Therefore, the end-of-the-week break that is so clear on the chart must still be considered a tentative move; because risk appetite was ultimately little moved through the session and the US dollar actually tumbled itself (the commodity and currency often move inversely due as the dollar is oil’s primary pricing instrument).

Ultimately, when the next solid trend does form, it will likely follow wherever investor sentiment leads. However, risk appetite itself has significant fundamental pressure from economic data on the backend. Specifically, should fear and uncertainty take over, there is more than enough reason to unwind speculative positioning. Today, the headline macro data was somewhat mixed. Retail spending in the world’s largest economy rose 0.3 percent against speculation of a contraction. On the other hand, the University of Michigan consumer confidence report unexpectedly eased back from a two-year high. These changes were relatively modest and do not definitively alter their respective trends of improvement. Taking a broader look at demand, the International Energy Agency revised its forecast for global oil demand for the year by 70,000 barrels to 86.6 million barrels per day. Further noteworthy in this release was the 1.7 million barrel increase to emerging market consumption to 41.2 million barrels per day. Economic expansion across the globe has developed more clearly outside the developed bloc; and top amongst this group is China, which is also the second largest consumer of fuel in the world. This is a link that will certainly not be overlooked going forward as the Chinese government attempts to cool its markets and economy to avoid a potential asset bubble. And, through this economic link, we loop once again back to the influence risk appetite has on the market as sentiment has so far held up despite building pressure for policy makers in the economy to act upon.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

Gold Extends its Decline Alongside the US dollar and Risk Appetite

Spot Gold  -  $1,102.11   //  -$7.39 //  -0.67%

It was an unusual end to the week for gold bugs. Through the close, the risk appetite was little changed while the US dollar was tumbling ; and yet, the precious metal was also on the decline. This is an unusual mix considering gold’s two most elemental roles in the financial market through recent history were as a speculative instrument and dollar-hedge. This divergence is most likely the mix of two key developments. The first consideration that market activity itself has become so stagnant that the correlation that has bound these markets together is loosening. A second issue is the deterioration of fundamentals in the background (despite the relatively stable condition of other growth-sensitive markets). Concerns about the stability of the Euro Zone, financial stability of China and sovereign credit ratings of the world’s largest players have all increased with time. So, while this metal has a value through its function as a safe haven by acting as an alternative to fiat currency; it could be considered too expensive and volatile to reliably play the role of a clear hedge. Looking at speculative interest, the COT report revealed speculators increased their long exposure on the COMEX by 822 contracts on to a net 208,194 contacts. At the same time, the delayed volume data on the active futures contract shows the highest level of activity, at a turnover of 236,000 contracts, since the February 5th plunge and reversal. We will see what leading fundamental driver takes precedence in the near future as the market finds its course for risk appetite.

Spot Silver  -  $17.08   //  -$0.10  //  -0.58%

Where other commodities would put in for a relatively active day Friday (compared to recent history); silver would exhibit little progress or volatility. Once again, we are presented with a clear reflection of the primary catalysts for this precious metal. As a speculative instrument, the lack of activity on the Dow Jones Industrial Average (our standard-bearer for risk appetite) gave little impetus for this commodity to stray in otherwise quiet markets. However, the permanent link to the US dollar would offer a modest increase in volatility, though direction would not match what EURUSD would suggest. For speculative interest, futures volume rose to its highest level in three weeks on turnover of 47,681 contracts Wednesday. Furthermore, the COT numbers showed a 4,107-contract increase in the net speculative long balance to a 35,165 total.

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

silver

Risk Appetite and Data Support Crudes Surge to New Highs Yet Conviction Does Not Hold

North American Commodity Update

Commodities – Energy

Risk Appetite and Data Support Crudes Surge to New Highs Yet Conviction Does Not Hold

Crude Oil (LS NYMEX) -  $81.85   //  $0.36  //  0.44%

Risk appetite, macro data and supply-and-demand statistics seemed to align for bullish crude traders. Yet despite begin given the fundamental green light (and notably still backed by impressive buying momentum over the past month), the active crude futures contract on the NYMEX was forced to retrace its morning thrust to a fresh, eight-week high just above $83. Whether using a fundamental, technical, sentiment or hedge-based trading approach, every active market participant is conscious of the $84 swing high set back on January 11th and its status as a 16-month high for the market. Surpassing this level could easily banish uncertainty and encourage sidelined investment; but truly extending a bull trend for this commodity will require a broad improvement in investor sentiment and a clear shift in production and consumption fundamentals. As for sentiment, the dollar was lower and equities were modestly higher; but it was obvious that the sparks of risk appetite are not catching. Whether a turn in the markets itself or a prominent economic catalyst is responsible for the inevitable restoration of speculative interest remains to be seen.

For actual drive, today’s fundamentals offered the better source of momentum – though this wouldn’t actually pan out as one would expect. Through the morning, the top headline was the report from China that its exports had surged 46 percent – suggesting global activity was accelerating and economies would require fuel to keep the expansion in place. During the European hours, there were two conflicting reports. Germany reported its crude reserves were 20 percent larger than initially estimated due to deposits reported in the Upper Rhine region. Counteracting this potential supply boost from Europe’s largest economy, OPEC raised its global consumption expectations for the year and upgraded its output projections by 190,000 barrels to 28.94 million barrels per day. Come the active US trading session, traders had hoped that the US Department of Energy inventory figures would be able to break the offsetting nature of the early data. Following the yesterday’s 6.5 million barrel increase from the API report, expectations were probably set higher for the DoE account than the 2.0 million rise expected. In fact, the 1.432 million barrel pickup through March 5th was smaller than expected; and there was a notable 3.181 million barrel and 2.796 million barrel contraction in gasoline and distillate inventories respectively. Furthermore, total fuel consumption rose 0.2 percent to an August high 19.7 million barrels. Nevertheless, with this weekly increase, we have see the longest period of expansion in crude holdings since May and the highest overall stockpiles at 353 million barrels since August.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

The Dollar Drops and Chinese Inflation Accelerates while Gold Tumbles

Spot Gold  -  $1,107.66   //  -$14.19 //  -1.26%

It seemed a dichotomy in nature. The US dollar was on the retreat and China reported remarkable levels of inflation; and yet, gold would tumble on the day. In fact, the commodity was little changed through most of the session; but there was a remarkable swing during the early trading hours of the US session that measured 2.7 percent in a mere two hours. This jump in activity notably pushed the market to lows not seen in over a week and ultimately broke a loose but untested rising channel for the past month.  For fundamental encouragement, the precious metal had a few contradictory dynamics to account for. Running astray of the commodity’s role as a dollar hedge, the decline in the US dollar through much of the day ultimately roused little impetus for price action. Furthermore, the currency’s penchant for playing safe haven seems to fit the assurances of former EU Commission President Prodi who suggested the Greece crisis had passed and other European economies would not follow in its path. However, there are two inconsistencies here. First, Prodi is no longer standing President; so he is entitled to black-and-white assessments; and gold itself has recently taken on a value of safe haven asset due to its value as an alternative to fiat currency with sovereign debt risk as inflated as it is. In the end, neither risk appetite nor credit stability were particularly strong; and long-standing concerns are still certainly engrained. Another questionable driver was China’s report of inflation. The government reported home prices grew at their fastest pace in nearly two years in recent data. This would seemingly support a demand for gold as an inflation hedge; but the implications this price growth has for an asset bubble and instability in the Chinese economy more than compensates for the bullish sentiment that can be derived from this data.

Spot Silver  -  $16.98   //  -$0.28  //  -1.62%

Just as surely as the dollar would retrace its gains yesterday, the currency would recover much of its losses today. In the end, this would leave highly-sensitive silver with a mute, dominant fundamental driver. From speculative readings, equities and other key markets were slowly building in favor of growth-linked performance. Nonetheless, this precious metal would take its cues from gold and close its worst daily performance in two weeks. Looking at speculative demand, iShares (the largest ETF backed by silver) reported its holdings were unchanged at 9,351 tons following two sales of 61 tons a piece over the past week.

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

silver

Crude Edges Ever Higher as Momentum Substitutes Fundamental Drive

North American Commodity Update

Commodities – Energy

Crude Edges Ever Higher as Momentum Substitutes Fundamental Drive

Crude Oil (LS NYMEX) -  $81.82   //  $0.32  //  0.39%

There was relatively little for fundamental traders to work with Monday; but that wouldn’t prevent oil from pushing a new eight-week high and closing the gap to the $84 swing high set on January 11th. At this point, the bullish bias can sustain itself on sheer momentum as long as there isn’t an active force to fight the market’s climb. In fact, over the past month, the nearby crude futures contract has climbed 15 of the 20 active trading days and advanced over 18.5 percent. On the other hand, the high volume levels that supported the initial bearish reversal have notably cooled while the CBOE Crude Oil Volatility Index has held below the one and three-month average around 35 percent. Nonetheless, the CFTC’s Commitment of Traders report revealed a growing interest amongst the speculative crowd with net longs rising a third week to 91,400 contracts.

Yet, speculative interests will not go unchallenged going forward. This morning, wariness over the financial stability of Greece and the Euro-area was further tempered by French President Sarkozy’s vow that the EU was prepared to support the ailing member should it need assistance. Furthermore, officials are reportedly working to create a European Monetary Fund that could be used to extend loans to Union members without inviting moral hazard or require nations to go outside the group to appeal for assistance. The timing for such an ambitious plan is critical however as a crisis before the fund can be implemented would be far more difficult to fix than prevent. Another concern that has not yet hit critical mass is the development of an asset bubble in China. Officials recently announced that all loan guarantees that were made on the part of local governments would be nullified and future assurances would be banned. It is speculated that a considerable percentage of 2009’s momentous build in lending was established through just such means, meaning the probability of default was much greater. Considering this booming speculative market is thought to have already been on the cusp of an asset bubble, this development could finally lead to a dramatic unwinding of overwrought capital markets. From sentiment to supply concerns, forecasts for inventory figures are already calling for a sixth consecutive increase in US reserves. According to Bloomberg’s poll, economists expected a 2 million barrel increase through the week ending March 5th. This would extend the longest strength of gains since May and further extend stockpiles that are already at their highest level since August at 341.6 million barrels.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

Despite Stable Risk Appetite Trends, Gold Suffers a Significant Correction

Spot Gold  -  $1,121.55  //  -$13.10 //  -1.15%

As testament to the relatively restrained volatility over the past few weeks (and the consistency of the controlled bullish bias); spot gold suffered its sharpest decline in a month Monday. Historically, this downdraft isn’t particularly sharp. Nonetheless, slipping below $1,130 has disrupted the market’s forward momentum. Furthermore, the 1.2 percent decline in the precious metal stood out amongst other asset benchmarks that were comparatively little changed for the day. Where did this wave of selling come from? The commodity has established a function that has traded back and forth between speculative asset and alternative investment to traditional fiat currencies. Over the past few weeks, the commodity has enjoyed an advance alongside equities but contradictory to the tepid sense of risk appetite that has developed in the background. For this asset to enjoy the trappings of a speculative asset, investors will have to be encouraged by fresh 12 to 16 month highs from the benchmarks from the various security classes. Looking at the COT data for last week’s positioning, net speculative interest on the COMEX rose for a fourth week to 207,400 contracts. Alternatively, a rebound in sentiment would naturally counteract gold’s appeal as a safe haven. This morning, news circulated that the EU was working to establish a lender-of-last-resorts program that would act like an IMF for the European region to avoid crises within the group. However, this does not immediately answer all the market’s troubles. The removal of stimulus, cracks in sovereign debt risk and overvalued markets make for rough financial terrain over the coming months and quarters.

Spot Silver  -  $17.21   //  -$0.15  //  -0.86%

Silver suffered its sharpest decline in 9 days Monday as the dollar stalled in its advance and gold guided the precious metals complex lower. Looking at market activity behind futures, delayed volume on the active silver contract traded on the COMEX reveals the advance of the past week was backed by relatively restrained turnover. On the other hand, open interest maintained its advance from late February lows. According to COT data, speculative positioning accounted for 23.3 percent of open interest this past week from 19.3 percent reported in the previous reading.

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

silver

Crude Traders Unable to Exploit Technical Break as Risk Ways the Market Down

North American Commodity Update

Commodities – Energy

Crude Traders Unable to Exploit Technical Break as Risk Ways the Market Down

Crude Oil (LS NYMEX) –  $80.39  //  -$0.48 //  -0.59%

Without momentum to step in to support yesterday’s push above $80.50, the active light sweet crude futures contract on the NYMEX would ultimately be led to a corrective move. Therefore, while the commodity technically marked its highest close since January 11^th Wednesday, the market is still anchored to the congestion that has stalled progress for going on two weeks now. Undermining speculative efforts to carry crude to a new 16-month high are the dampening effects that stalled risk appetite has had across the capital markets. The same hesitation at the threshold of a new trend was seen in equities and EURUSD. The curb on sentiment is still a culmination of many different factors (including the struggles of an economic recovery, a withdrawal of government stimulus and uncertainty in sovereign debt risk); but risk aversion was leveraged today through a few notable events. The European Central Bank and Bank of England’s respective monetary policy decisions would offer little guidance on the difficult balance between growth and debt reduction. Both groups would maintain their benchmark rates and the BoE maintained its 200 pound bond purchasing program. However, the ECB would take another, measured move towards tightening with the announcement that it was switching to a variable rate on its three-month cash offers. Exacting a greater effect on sentiment, Greece finally decided to go forward with its necessary 5 billion euro bond sale after its spreads dropped following yesterday’s additional austerity cuts. With a bid of nearly three times what was offered, the market seemed confident in Greece’s ability to finance its debts. Nonetheless, calls for the EU to announce details on any aid package should the member economy need it from Finance Minister Papaconstantinou reflects the fine line this region is walking.

Going forward, it is very unlikely that oil will be able to decouple from its role as a speculative instrument. With global investors wary of adding to risky positions for fear of an unforeseen crisis, going long energy when global growth is still tame would be a risky step – especially at the market’s current highs. As for the ongoing adjustments to demand forecasts (through growth readings), the economic docket was light meaningful releases. Topping the list was the revision to the Euro Zone’s fourth quarter GDP figures. Whereas the headline figures for growth were unchanged at a 0.1 percent increase over the three-month period, household spending was notably upgraded to an unchanged figure. In other news, US factory orders rose by 1.7 percent in January and consumer spending – measured through the ICSC Chain Store Sales report – rose 2.7 percent. Tomorrow, the US non-farm payrolls could give the most meaningful adjustment to growth forecasts for the world’s largest economy that the market has seen in some time. Expectations are already set low with a forecast for 65,000 jobs lost and an uptick in the unemployment rate to 9.8 percent; but this speaks more to the slow recovery the economy has ahead of it rather than ushering in renewed fear of a secondary recession. From the supply side, the US Department of Energy inventory report for the week ending February 26^th yesterday recorded a 4.03 million barrel increase – extending the longest series of weekly increases since May and which pushed total inventories to its highest level since August. Alternatively, refineries increase their utilization rates to 81.9 percent – the highest level since October.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

Tempered Risk Appetite Draws Gold’s Controlled Rally to a Close

Spot Gold  -  $1,131.80  //  -$8.10  //  -0.71%

Spot gold fell for the first time in six days, ending the longest stretch of gains since early October. However, this pullback would ultimately come at the same pace the initial upswing was running. Quantifying the lack of momentum behind the metal’s recent bull trend, the CBOE’s Gold Volatility Index fell to a seven-week low of 20.06 percent. Notably, this activity levels just above the January and October lows that preceded forceful bearish and bullish waves respectively. This trend towards moderation comes from the soothed sense of financial uncertainty that peaked with the perceived Greek crisis. However, this is not to mean that risk trends have vanished for good while inflation and growth concerns step back in. Greece’s ability to fund its deficit is still questionable and a revival in market-wide fear could expose doubts about this region. Yet, even if this hot spot for investor anxiety were to fade, there is still a matter of ballooned global deficits and warnings surrounding sovereign credit ratings for even the largest economies. This raises the value of the metal as a safe haven when investors are looking for an alternative to devalued fiat currency. In the meantime, Friday’s US employment report could resuscitate gold bug’s focus on risk trends as this data weighs on investors’ confidence about the global recovery and further exacts its influence on the US dollar.

Spot Silver  -  $17.12   //  -$0.08  //  -0.44%

Like its more expensive counterpart, silver would end the day in the red. However, the pullback the metal would put in for was notably more controlled than the series of daily advances that preceded it. Lacking the clear function as a store of value that gold so blatantly exploits, this commodity is more sensitive to the whims of risk appetite and the actions of the US dollar. This could lend itself to leveraged volatility following the release of the often-unpredictable US NFPs.

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

silver

Crude Elicits another Swing of a Tight Range as Risk Trends Clash

North American Commodity Update

Commodities – Energy

Crude Elicits another Swing of a Tight Range as Risk Trends Clash

Crude Oil (LS NYMEX) –  $78.81  //  -$0.85 //  -1.07%

Volatility behind oil futures was relatively tame throughout Monday aside from a brief period during the early afternoon hours of the US session. Nonetheless, this short-lived move was momentous enough to span a frequented range loosely established between $80.50 and $78. This is a relatively modest range considering the level of volatility behind price action. This combination of high activity and limited room to run reflects the indecision in investor expectations for risk appetite; but technically and fundamentally, it is also a sign that something will have to give soon. For fundamental impetus this morning, there was a distinct departure from correlation between crude and underlying sentiment trends. Through all three major sessions (Asian, European and US) on Monday, equities were on the advance – though the pace was relatively restrained. The popular consensus among market commentators is that the advance in stocks was reflective of confidence behind a meaningful resolution to potential crises developing in the Euro Zone and UK. Yet, a tumble from the euro and pound discard this theory. In reality, there was little consistency in underlying sentiment across the various asset classes; and these particular circumstances likely allowed oil to adopt the universally high-level of volatility while allowing the commodity to defer to its own technicals and fundamentals for direction (or lack thereof).

For supply-and-demand considerations, there were many big-ticket economic releases on which to refine expectations for economic activity. Offer the most straightforward read on oil consumption forecasts, the series of February manufacturing sector activity reports would disappoint. Among the headlines this morning, the biggest drop from the US ISM factory activity gauge in 14 months and a year-low in the Chinese counterpart to this report indicated a cooling in production efforts from the world’s two largest energy consumers. In other news, the US reported an improvement in consumers spending – which accounts for more than three-quarters of the economy. Spending through January rose for a fourth consecutive month by 0.5 percent. These are promising figures; but in truth their influence on demand for crude has already been factored into the commodity’s fair value. From this standpoint, tomorrow’s API inventory figures and Wednesday’s DoE numbers will offer a more lasting influence on the equilibrium between supply and demand. This is especially true for the government’s report considering the consensus for a fifth weekly increase in stockpiles of 1.05 million barrels would mark the long period of expansion since the period ending May 1^st.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

A Rally from the Dollar and Dow Keeps Gold Little Changed Monday

Spot Gold  -  $1,118.05  //  $0.45 //  0.04%

It is unusual to see gold carving such a small range while the other speculative benchmarks have developed impressive levels of volatility; but this reserved pace does have its fundamental groundings. Looking at a chart of the precious metal, Monday’s range was the smallest seen since February 15^th. From a technical perspective, this can be described as stalled momentum in the face of a closely monitored $1,125 figure. Alternatively, looking at the economic dynamics of this tempered pace, we see some of the market’s primary drivers offering conflicting bearings. For gold’s role as a speculative asset, equities would advance steadily through the day. On the other hand, the metal’s function as a dollar-hedge would work against it as the currency established hearty gains against key counterparts through the early hours of the US session. Considering the greenback frequently follows its role as a safe-haven currency, this divergence between risk trends and dollar under high volatility conditions is unusual. As the week wears on, these various roles will likely realign themselves and a clear bearing on risk appetite will put the gold back on trend. In the meantime, perhaps the collection of central bank rate decisions (starting with the RBA’s meeting early in Tuesday’s Asian session) can develop the argument of whether fiat currency or precious metal represents the better store of wealth.

Spot Silver  -  $16.46   //  -$0.02  //  -0.12%

Silver has a dual role among the fundamental crowd. As a precious metal, there is a clear value as a speculative instrument. On the other hand, it also maintains an industrial use as affordable metal. This unique position doesn’t often lead to significant imbalances because its economic use is usually dwarfed by the volatility behind risk sentiment trends. However, a sharp rally in copper prices this morning in response to the earthquake in Chile (the world’s largest producer of the metal) would lead to a meaningful advance in the base metals complex. At its day high, silver was pushing a record high; but a retracement in copper and relatively strong dollar would eventually lead silver to a modest change for the day.

Discuss gold and oil trading with other traders in the DailyFX Forum

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

silver

Oil, Gold Threatened as Greece Sinks Risky Assets

Commodities – Energy

Oil Prices Threaten Support as Greek Downgrade Threat Sinks Risky Assets

Crude Oil (WTI)        $79.53       -$0.47       -0.59%
Technical positioning is essentially unchanged from yesterday: prices at the bottom of a rising channel set from the swing low established earlier this month (now at $79.17), with a break lower exposing horizontal support at $77.53 and ultimately the $76 figure. The push lower may be catalyzed as risky aversion makes a comeback in the wake of comments from ratings powerhouse Standard & Poor’s, who said that they may downgrade Greece again by the end of March. This comes on the heels of yesterday’s downgrade of Greece’s four top banks by Moody’s. The issue has also been compounded by comments from Greek Deputy PM Theodoros Pangalos, who told the BBC that Germany has no right to criticize his country after devastating it under the Nazi occupation, adding that the current crop of EU leaders are of “very poor quality” and unfit to manage Europe’s fortunes. Such outbursts will make it all the more difficult for Western Europe to sell a Greek bailout to its electorates, who are already upset with the idea of spending their tax money to finance southern Europe’s spendthrift policies, making the likelihood that the troubled region is left to its own devices significantly more likely. The prospect of a sovereign default with the Euro Zone has sent investors fleeing out of risky assets, with stocks broadly lower in Asia as well as opening in the red in Europe. US equity index futures are likewise in the red, hinting that oil may mount a push lower considering the near-term percent change correlation between crude and the MSCI World Stock Index stands at a firm 0.91. January’s US Durable Goods Orders and weekly Jobless Claims figures headline the economic calendar.

Commodities – Metals

Gold, Silver to Extend Losses as Risky Aversion Gains Momentum

Gold       $1091.90       -$5.85        -0.53%
Prices have taken out range support at $1101.16, with the door now open for a move to resistance-turned-support at the top of a falling channel established from January’s swing high (now at $1073.21). As with oil, the turmoil in Greece promises to encourage further losses as the near-term percent change correlation between the yellow metal and the MSCI World Stock Index remains significant at 0.75.

Silver       $15.75       -$0.22       -1.39%
Technical positioning is unchanged from yesterday: are trading sideways above horizontal support at $15.68, with near-term resistance at the bottom of a previously broken rising channel set from the swing low set earlier this month. The correlation between the cheaper precious metal and the MSCI World Stock Index matches that of its more expensive counterpart at 0.75, suggesting bearish momentum is set to resume. A break past current support exposes considerable downside potential toward the $15.00 figure.

silver

Volume Recovers along with Bearish Convictions for a Steep Crude Loss Tuesday

North American Commodity Update

Commodities – Energy

Volume Recovers along with Bearish Convictions for a Steep Crude Loss Tuesday

Crude Oil (LS NYMEX) -  $79.08  //  -$1.23 //  -1.53%

Following Monday’s relatively restrained level of activity, crude would find conditions far more interesting today. For the market itself, the commodity would report its biggest daily decline since the February 5th tumble. This price action was further encouraged by a surge volume behind the active NYMEX futures contract (seven times greater than the recent record, non-holiday lull seen yesterday). However, despite the session’s bearish drive; bullish interests would step in to maintain the rising trend channel of the past two-and-a-half weeks. Where was the motivation for such a significant reversal? Risk appetite was no doubt the root of investor activity across the asset classes; but macro-economic data would have its own stirring qualities. Taking stock of sentiment, equities and commodities were lower across the board through the active US session. As has been the case recently, the move away from risky positions (or unwinding existing exposure) has rerouted capital away from assets like crude and to the US dollar. As the primary pricing instrument for oil, the currency’s gains offer a further weight to price action.

While the shifting tides of risk appetite can carry itself under its own momentum, a few big-ticket economic releases no doubt added fuel to the fire (and perhaps catalyzed the initial tumble).The dollar’s rally this morning began as EURUSD responded to the release of the German IFO business sentiment survey for February. Confidence in Europe’s largest economy unexpectedly fell for the first time in 11 months on a combination of harsh weather, uncertainty surrounding consumer spending and the threat that Greece troubles could turn into a Euro Zone financing matter. The sharp drop in the US Consumer Confidence report from the Conference Board amplified the dour mood among investor interests. The present conditions reading of the report marked its lowest reading in 27 years; and with it, expectations of pull-through energy demand has been depressed even further. Turning form macro interests to energy-specific fundamental considerations, inventory data will be released over the next 24 hours. After the close of the US session, the American Petroleum Institute (API) is scheduled to publish its stockpile figures for the week ending February 19th. This data is remarkable in its own right; but for market-influence, the US Department of Energy (DoE) due tomorrow holds the greater influence over price action. Bloomberg’s consensus forecast is looking for a 1.9 million barrel increase (which would account for the longest period of gains in nearly nine months) while gasoline holdings are seen rising by 600,000 barrels (though, as of last week inventories were already at their highest level since March of 2008).

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

Gold Extends its Pullback, Breaks a Steady Trend Channel as the Dollar Rallies

Spot Gold  -  $1,103.70  //  -$10.55 //  -0.95%

Speculators would initially attempt to hold up gold’s two weeks rising trend channel; but a souring of background sentiment would eventually call the end of this notable technical pattern. Tuesday’s decline measured as much as 1.3 percent through its session low; and the loss through the NYMEX close was the biggest bear run the commodity has seen since the February 4th plunge. For drive, the tumble in equities and subsequent advance for the benchmark dollar would bear down on two of the precious metal’s primary fundamental applications: speculative asset and dollar hedge. It may seem that these two drivers are the same thing. However, a comparison of a speculative benchmark like the Dow Jones Industrial and the benchmark currency itself shows a strikingly different path. Over the past few weeks, the Dow has advanced slowly but steadily; while the dollar has held onto its trend through this same period and even established fresh 8-month highs. With interest rate speculation bolstering real market rates, the dollar is a concern all of its own. Looking ahead to tomorrow, the commodity’s other two primary roles (inflation hedge and safe haven) will be roused by testimony from two key US policy makers. Treasury Secretary Timothy Geithner will speak on government spending going into 2011 – developing sovereign credit concerns and potentially reviving the metal’s tarnished appeal as a store for funds despite its high price. Fed Chairman Ben Bernanke will also testify before a house panel on monetary policy. This will be particularly interesting for rate watchers given the central bank announced a surprise hike to the discount rate last week.

Spot Silver  -  $15.84 //  -$0.41  //  -2.50%

Just like its more expensive counterpart, silver would suffer its biggest daily decline in nearly three weeks on a marked advance for the dollar and overall slump in speculative fervor. However, unlike gold, this metal would not force is own rising trend channel. Looking at market activity, aggregate open interest among the active futures contracts is near its lowest levels since September 8th as investors lighten their portfolios of speculative positions that don’t bear tangible interest. Tomorrow, the March 2010 futures contract will expire; requiring those that trading this contract to roll over to the next month.

Discuss gold and oil trading with other traders in the DailyFX Forum

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

silver

Iran Sanctions Move to the Forefront for Crude Traders as Sentiment Trends Cool

North American Commodity Update

Commodities – Energy

Iran Sanctions Move to the Forefront for Crude Traders as Sentiment Trends Cool

Crude Oil (LS NYMEX) -  $80.00  //  -$0.06 //  -0.07%

Looking across the various markets Monday, it was clear that speculative interests were relatively subdued. This alludes to the presence of big-ticket fundamental concerns (the potential Greece default and steady withdrawal of government stimulus) that are both preventing another build up in speculative positions and found investors seeking out further developments in these matters that could define the future trading environment. For crude, the lack of underlying risk appetite would dry up momentum behind the commodity’s impressive advance of the past two weeks. On the day, oil prices were relatively unchanged; but there was notable discrepancy between the intraday price action of the March and April futures contracts on the NYMEX as the market rolled over for the former’s expiration. Taking a broader view of speculative interest, the CFTC’s Commitment of Traders numbers revealed net speculative long positions for the benchmark crude contract jumped 63 percent in the week through the 16th; though the total only represented 5.3 percent of total open interest.

From speculative interests to supply-and-demand considerations; the docket for scheduled and unscheduled event risk was relatively light. For macro economic data, the US Chicago Federal Reserve National Activity Index reported only the second ‘above trend’ growth reading in nearly three years. The outlook for the world’s largest economy is brightening; but the struggles for employment and business investment are notable hurdles to a true recovery in activity and thereby energy demand. What’s more, with emerging markets seeing export demand drying up and some nations (China) forcibly slowing the economies; the forecast for global crude consumption is discouraging. This very assessment was formed by the Centre for Global Energy Studies – headed by a former Saudi Arabian oil minister – when they projected that oil prices will struggle to hold above $80 this year. Among the other headlines that oil traders are keeping track of are the French strikes and political spat between Iran and the rest of the world. A refinery strike at Total in France is entering its sixth day. A large union is calling for additional strikes at other major firms. In the Middle East, Iran is coming under pressure from the US for its plans to build two new uranium enrichment plants. Both of these issues are still developing; but their scale for influence on true supply and demand is relatively constrained. Looking ahead to the forthcoming inventory reports, Bloomberg’s survey has tallied a forecast for a 1.95 million barrel increase in stockpiles. If this increase is released, it would be the longest period of gains in nearly nine months.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

Little Movement in the Dollar and Risk Appetite Leads to the Same for Gold

Spot Gold  -  $1,114.00  //  -$5.20 //  -0.46%

With neither risk trends nor the US dollar developing significant headway Monday, gold would find no fundamental leverage to resolve the technical congestion that has developed over the past week. Spot gold has carved a steady bullish channel since the February 5th reversal; but restrained momentum has prevent the market from moving beyond $1,225. Like currency or equity traders, those in the gold market are looking for the larger fundamental trends to develop headway. The European Union’s management of Greece’s financial troubles has been woefully disappointing; yet cautious investors are hesitant to label this the next financial crisis. The same is true about the steady and widespread withdrawal of government stimulus – a vital element to the global financial market recovery last year. While neither threat has produced any positive or negative developments; the market’s mere appreciation of these dangers reflects a state of uncertainty. In other news, the World Gold Council opined that China wasn’t a “realistic candidate” to buy the remaining portion of the IMF’s gold inventory that it plans to sell (approximately 191 tons). This contradicts the assessment of other notable analysts who say China’s efforts to diversify away from the US dollar will lead to large purchases. Currently, the world’s second largest economy is struggling to prevent the popping of a significant asset bubble. A move into risk-sensitive gold seems an unattractive move at the metal’s already high prices; but a concentrated exposure to US policy and markets is a problem in its own right.

Spot Silver  -  $16.23 //  -$0.09 //  -0.55%

Silver would advance intraday to its highest level in nearly three weeks Monday morning; but the metal would struggle to hold onto its gains as the US dollar and Dow maintained tight ranges for the day. Looking at market tangibles, volume on the active contract extended its steady decline over the past week – a trend that roughly extends back to the beginning of the current bull trend. Furthermore, open interest has tumbled to its lowest level since November 12th – though it is difficult to establish how much of this is due to the proximity of the February futures’ expiration (then again March is the far-more active contract).

Discuss gold and oil trading with other traders in the DailyFX Forum

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

silver

US Equities, Commodities, Greenback All Higher After CPI Report

U.S. Session Key Developments

•    CPI Report Relieves Investors of Fed’s Stimulus Withdrawal
•    Dollar Reaches Eight Month High Against Basket of Currencies

A lower than expected rise in the Consumer Price Index gave US stocks a lift and helped cap off the biggest weekly rally since November.  Initially, index-futures had been pointing to a lower open after the Fed raised the discount rate by a quarter point to 0.75 percent in a surprise decision made yesterday after exchanges closed.  Investors worried that the move was the first of many that the Fed would be taking to remove the unprecedented stimulus that has been propping up the financial system.  Futures than pared losses after the CPI rose 0.2 percent in January, less than the 0.3 percent economists had been predicting.  The CPI, a gauge of consumer inflation, quieted investors’ worries by signaling that inflation has not yet become a problem.

The greenback spiked after yesterday’s surprise Fed move but also trimmed gains after the CPI data.  The dollar index, a measure of the dollar’s strength against its major trading partners, was as high as 81.342 before closing the week at 80.553—its highest weekly close since the first week of June 2009.  Commodities gained despite the strength in the greenback with the CRB Commodity Index up 0.6 percent.  Precious metals were the best performers, with gold spot up 0.95 percent and silver spot up 2.9 percent.  Energy was also up as crude gained 0.95 percent but natural gas gave up 2.47 percent.  Next week we will hear about US Consumer Confidence as well as fourth-quarter GDP as we wait to see if equities can continue with this week’s rally.

DJIA 30                  10,402.35                    +9.45                           +0.09%
The Dow Jones Industrial Average gained for the fourth straight day to finish the week up 2.5 percent.  The index trimmed its 2010 decline to less than 0.3 percent after briefly turning positive for the year during the session.  Just over half the issues were up today as Pfizer, Du Pont, and Boeing all gained over 1 percent to lead the advance.

S&P 500                     1,109.17                      +2.42                           +0.22%
Six of the ten industry sectors were up today as the Standard and Poor’s 500 Index posted the largest advance of the three major US indices.  Utility stocks were up 1.41 percent as crude oil reached a five-week high.  Financial stocks rose 0.57 percent as a group as Berkshire Hathaway, a recent addition to the S&P, gained 2.74 percent to contribute the most to the S&P’s advance.  Berkshire shares closed at 78.74, a 15-month high.

NASDAQ                   2,243.87                      +2.16                           +0.10%
The tech heavy Nasdaq Composite Index closed higher today despite tech stocks giving up 0.27 percent.  Just over half of tech stocks advanced while Dell contributed the most to the sector’s decline.  The company’s shares dropped 6.7 percent after the PC manufacturer reported that gross margin fell below the 18 percent projected by analysts.  Holiday sales of low-priced PCs and higher component costs weighed on earnings.

Written by Gary Chalik, CFDTrading Research
Please send any comments about this report to GChalik@fxcm.com

silver

Crude Follows Other Capital Markets by Shaking off Fed’s Surprise Stimulus Withdrawal

North American Commodity Update

Commodities – Energy

Crude Follows Other Capital Markets by Shaking off Fed’s Surprise Stimulus Withdrawal

Crude Oil (LS NYMEX) -  $79.79  //  $0.73 //  0.92%

The late session drop from crude yesterday in response to a surprise tightening of the Fed’s monetary policy proved temporary (just as it was for the US dollar). Broad-based risk appetite recovered its footing and developed reasonable momentum, lifting the trader-friendly commodity to a five-week high while simultaneously keeping within the general channel that has defined price action since the February 5th reversal. This price action was certainly having its influence on positioning. According to the CFTC’s Commitment of Traders (COT) report, net speculative long positioning in light sweet crude on the NYMEX jumped 63 percent to 68,436 contracts through the week ending February 16th. Notably, this represents only 5.3 percent of net open interest. The contrast of the weekly advance and the generally depressed interest behind the commodity mimic the sentiment that underlies price action. Most capital markets have climbed slowly this past week; but the threats to stability are numerous and certainly growing in scope. Looking forward, the two most immediate threats to speculative positioning are the potential that a European Union crisis will spread from Greece and concern that the withdrawal of stimulus and accommodative monetary policy will expose an otherwise week market.

As for the fundamental balance between supply-and-demand, today’s macro data added little to a strong growth forecast. Indeed, this was the overall theme for the entire week. Today, a 1.2 percent drop in January UK retail sales was offset by an increase in the Euro Zone’s manufacturing activity survey for February. Neither of these indicators would have an overwhelming impact on the broader levels of global consumption. Recently, the API reported US fuel consumption through the month of January fell to its lowest level for that particular month in 12 years. Considering global policy officials have lowered trimmed their growth projections and have stepped up their efforts to withdrawal the same stimulus that fueled reinvestment through 2009, it will be difficult for demand to catch up to current levels of output (even in their notably depressed state). Next week, there is plenty of scheduled event risk to tip the scales of supply and demand; but the revisions for US, German and UK GDP will hold the most tout through the component figures adjustments. Another consideration for the week’s open is the expiration of the March oil contract on the NYMEX. Rolling over positions will undoubtedly skew price action.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

Gold Mirrors the Dollar’s Reversal Leaving the Metal to a Distinct Range

Spot Gold  -  $1,119.99  //  $11.29 //  1.02%

Both gold and the US dollar would resuscitate their distinct correlations to risk appetite trends (on opposite sides of the scale). The revived relationship between markets would help to amplify the dramatic swing in underlying sentiment trends. Following the close of the active US session Thursday, the Federal Reserve’s surprise hike to the discount lending rate sparked a sense of fear that mirrored the reaction to China’s repeated increase to its own reserve ratio. This step by the world’s largest central bank is aimed at normalizing monetary policy; but it has the very significant side effect of removing the same stimulus that nursed risk appetite back to health through 2009. This effort is building steam globally and will keep pressure on speculative interests for some time to come. However, taking stock of the general sentiment for the week, traders deemed the immediate reaction to the Fed’s hike as overblown. The safe-haven dollar would pullback from eight-month highs; and gold would find encouragement from both the currency and risk appetite. On the other hand, there are a few interesting notes to be made. First of all, the precious metal has not held consistently at a $1,125 range high. In contrast, gold priced in euros would hit a record high (reflecting the fiscal and economic troubles in the Euro Zone). Another notable development was the divergence in Friday’s price action and inflation pressures. The US CPI figures cooled unexpectedly in January – reducing the metal’s value as an inflation hedge. According to the COT figures, net long speculative positioning grew by 7,399 contracts to 188,858 in the week through Tuesday.

Spot Silver  -  $16.32 //  $0.47 //  2.94%

Another solid rally would extend silver to its highest level in two weeks; and yet the metal would not leave the comfort zone defined by the rising trend channel from the February 5th reversal. The boost in volatility and steady bullish bearing would be found through the concurrent influences of a jump in risk appetite and drop in the US dollar. Avoiding the burden of most swells in economic data and concerns over inflation, this commodity is playing its role as a speculative asset well. Looking ahead to next week, the dollar’s divergence to risk trends will likely close as the latter picks up momentum. This will likely unify and intensify silver’s momentum. Looking at speculators interest, the COT figures reveled a modest 1.7 percent increase in net long positioning to 25,378 contracts.

Discuss gold and oil trading with other traders in the DailyFX Forum

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

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