Gold climbs to eight-week high, WTI Crude surges from seven-week low

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  • Wednesday, 01 Sep 2010

GOLD started the week at 1227 and declined as a stronger dollar curbed demand for the yellow metal. Last Tuesday, the release of poorer-than-expected US existing home sales kicked up the market from 1209 and reached 1235.

The surge covered twice the average daily range on renewed concerns that the economic recovery is going to become stagnant.

Mid-week, gold pushed higher to 1242 after orders for US durable goods increased less than forecast in July while sales of new homes unexpectedly dropped.

Gold eased back from the eight-week high 1244 after better unemployment claims and that the US economy grew at a 1.6% annual rate in the second quarter which was better than the median forecast.

Federal Reserve (FED) chairman Ben Bernanke acknowledged the retarded growth and vowed to “do all they can” to ensure a recovery.

In theoretical equation, if the markets are going to see more quantitative easing, dollar will weaken and boost gold prices. Gold closed the week up 0.8% at 1237.

WTI Crude started last week at 73.8 and plummeted lower to 70.7 after purchases of existing US homes plunged 27% to a 3.83 million annual rate.

Mid-week, WTI Crude rose to 73.9 after the US economy grew and applications for US unemployment claims dropped by a better than expected 31,000 to 473,000 in the week ended Aug 21.

Crude stockpiles increased 4.1 million barrels to 358.3 million for the week ended Aug 20, compared with analysts’ predictions of an increase of 0.1 million barrels.

This reverses the fall in the inventories for the past three weeks signalling increasing stock levels and potentially weaker prices. The Organisation of the Petroleum Exporting Countries (Opec), which supplies 40% of the world’s crude oil, call the US$70-$80 range as the perfect range and have targeted the US$75 as a fair price for consumers and producers.

Should prices fall below US$70, we expect Opec may produce more supply to support oil prices.

Last Friday, Crude prices rallied on a pledge by Bernanke to maintain the US economic recovery. WTI Crude closed the week up 2.3% at 75.5.

Technical analysis

Gold was bullish last week, attaining 1244 regions after reversing from the low at 1210 regions. However, the market had shown technical exhaustion in the rally and we reckon that reversal is very likely to occur.

This week, gold may turn bearish if the top 1244 can remain intact. With risk controlled at 1250 regions, we foresee that gold has the potential to reach 1200 regions again in the near future.

Last week, WTI Crude went as low as 70.7 regions during mid-week before bouncing back sharply and closed at 75.9 regions.

This week, we foresee that the WTI Crude will remain bullish and may reach 80.0 regions by the end of the week.

Risk should be managed at around 70.0 regions, as the strong support zone is identified at 70.0-71.0 regions.

·This article is written for general information only. Dar Wong, Paul Chung and Wahyu PY are the research team members of You may reach them through the website

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