Gold trades sideways while WTI Crude snaps price decline

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  • Thursday, 15 Jul 2010

GOLD started last week at 1211 and traded lacklustre last Monday as US banks were on holiday.

From Tuesday, gold fell to a six-week low at 1185 as rallies in global stock markets eroded demand for the precious metal as an alternative investment.

However, investors presumed the market has reached its first bottom target in 1185 and waited for additional fundamental news to drive the prices lower but to no avail. The metal remained trapped within a narrow 1185-1214 range for the rest of the week.

While gold ended the week at 1210, we reckon if no further bearish factors erupt in the coming week, the metal may reverse up while firming on gradual consolidation due to bargain hunting.

WTI Crude on the other hand started last week at 72.5 and traded to a low of 71.0, creating weakness in a three-week period due to concerns that the slown down in China may constrain global fuel demand.

Mid week, crude prices snapped the longest stretch of declines since May after US equities picked up boldly from a 10-month low beneath 9700.

Energy prices further extended its gains after the US initial jobless claims reported a decline from 475,000 to 454,000 in the week ended July 1.

After the International Monetary Fund (IMF) bolstered its economic outlook on 2010 global growth to 4.6% from the previous forecast of 4.2%, a simultaneous drop in the US crude inventories hiked crude prices.

In the week ended July 1, the crude stockpile slid by 4.96 million barrels to 358.2 million barrels. WTI Crude ended the week at 75.4.

Technical analysis

Last week, gold touched 1185 regions and rebounded above 1200 benchmark. In the coming week, we reckon the market will be capped at resistances R1-1220 and R2-1235.

The sentiments seem to be bullish bias with support resting in 1200 regions. However, abandon your long-view if the bear breaks the 1185 supports that may go lower to test 1170.

WTI Crude prices drove up from current month’s low at 71.1 regions on Tuesday to 76.5 regions by Friday.

Since the market could not sustain its rally very well above 76.0, the bull may be consumed by the opposite bear in coming week.

While we forecast the prices may swing between 71.0 and 77.0 regions, traders may observe short entry from the top range around 75.8 regions. Abandon your short-view if the market penetrates above 77.00.

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

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