Gold and WTI Crude tumble along with US equities

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  • Wednesday, 07 Jul 2010

GOLD attempted to retest the recent record high at 1265 but stalled at 1262 due weakening strength. Last Thursday, the metal tumbled to 1196, the most since February on signs that Europe’s financial industry may recover, thus curbing demand for the yellow metal as a safe haven.

Gold rebounded last Friday as buyers perceived the sell-down was overdone. On the hind side, global investors are still considering gold as a safe haven whenever the economic fundamentals in Europe and the US turn jittery.

In China, funds are also flowing to the yellow metal after the Chinese government introduced steps to curb gains in the real-estate market. Demand for gold as wealth protection and a hedge against inflation will continue to support prices. Gold ended the week at 1211.

WTI Crude started last week higher at 79.3 but succumbed to heavy profit-taking. The bear drove the prices down to 71.6 and made the longest weekly decline in seven weeks amid concerns that the manufacturing sectors in China are slowing.

As the world’s fastest-growing energy consumer, China reported its manufacturing growth at 52.1 in June, falling from 53.9 in prior month and making the third month decline.

In the US, manufacturing slid when the Institute for Supply Management (ISM) said its manufacturing index fell to 56.2 from 59.7 in May. Another separate report from Labour Department stated jobless claims increased by 13,000 to 472,000 in the week ended June 26, indicating more people were out of job. From the data shown, the two largest energy consumers in the world are facing growth challenges that will reduce the consumption rate of fuels in coming months. Crude stockpiles fell 2 million barrels in the week ended June 25 to 363.1 million, after past two weeks of reduced imports. WTI Crude closed the week at 72.2.

Technical analysis Last week, gold plunged down sharply from 1262 regions to 1196 regions. The metal retreated up a little and closed at 1210 regions on Friday. Currently, gold prices are strongly supported above 1180 regions, especially with the confluence of psychological support level around 1200 regions.

Breaking below 1195 level, gold is potentially making another leg down to 1180 regions before bouncing back up.

This week, we will likely see gold prices consolidate but capped at 1220 regions. In our opinion, this recovery might be short-lived as fundamental influences on the market may drive gold prices lower. Abandon your short view if the market penetrates above the aforementioned benchmark.

Similarly, WTI Crude prices also plunged from 79.3 regions to as low as 71.6 regions on Friday. Throughout the whole week, WTI Crude traded lower everyday consecutively due to risk aversion on demand outlook.

This week, we reckon WTI Crude may retest the support around 69.5 regions with resistance capped at 76.00 regions. The market is bullish bias and we caution long view to be guarded against a drop beyond 69.00 supports.

■ Dar Wong, Paul Chung and Wahyu PY are the research team of You may reach them through the website

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