Gold sets another record high as WTI Crude moves within narrow range

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  • Thursday, 30 Sep 2010

GOLD started the record-setting week at 1276 and climbed to 1283 below sliding to 1270 on profit taking by some investors.

Last Wednesday, the US Federal Reserve (Fed) moved closer to a second wave of quantitative easing and commented for the first time that a very low inflation, in addition to sluggish growth, would warrant taking action.

The US dollar slid to the lowest in almost five months against the Euro on speculation the Fed’s willingness to ease monetary policy further will dampen demand for US assets. The dollar dropped and gold climbed to 1296.

Analysts reckoned that the Fed’s statement about inflation implied load-up on gold since they will continue quantitative easing. On an inflation adjusted basis, some analysts are expecting gold to climb to 1500.

Last Friday, the metal continued its relentless record climb to 1299, a whisker away from the 1300 psychological resistance as investors sought protection of wealth and an alternative to a weakening dollar.

Gold is up 18% this year and heading for its 10th consecutive annual gain, the longest winning streak since at least 1920. The metal closed the week up 1.6% at 1296.

WTI Crude, meanwhile, started last week at 74.7 and reached a high of 76.7 before easing off. Market showed concerns that a slow economic recovery will erode demand for fuels in the US - the world’s biggest crude consumer.

Last Tuesday, WTI Crude fell to 74.6 after confidence among US home builders in September unexpectedly held at the lowest level in more than a year and matching the August reading as the lowest since March 2009, adding to concerns that a recovery in fuel demand may falter.

WTI Crude declined further to 73.7 after crude stockpiles rose by 960,000 barrels to 358.3 million for the week ended Sept 17, 13% above the five-year average compared with analysts’ predictions of a decrease of 1.75 million barrels.

The unexpected build-up shows that the large supply overhang is still worrying. Last Thursday, WTI Crude climbed to 75.5 as the index of US leading indicators beat economists’ estimates in August, signalling an economic expansion into next year.

Last Friday, WTI Crude climbed even higher to 76.6 as demand for American capital equipment (durable goods) rebounded and German business confidence improved.

WTI Crude closed the week up 2.4 % at 76.5.

WTI is losing its relevance as a proxy for global oil supply-demand balance as the price gap between WTI and Brent widened during the Enbridge pipeline incident last week.

Brent is looking like a better candidate as it is just as high quality and low-sulphur as WTI and better reflects the global oil supply-demand balance situation.

Technical analysis

Gold was again very bullish last week, going up from 1271 to 1299, leaving almost no room for retracement.

It has entered a highly uncharted territory, and so far keeps making a series of new all-time highs almost everyday.

This week, gold is likely to maintain its bullishness and the price level should not fall back below last week’s low at 1271 regions, which is our new support region.

Gold may only have a quick pullback to 1288 regions before recoiling this week, which potentially can go up to 1340 regions before we see any major retracement.

Last week, WTI Crude was in consolidation and trading sideways. The price movement was indecisive and choppy, ranging from low of 73.6 to high of 76.7.

The consolidation between 71.0 and 78.0 regions is expected to continue this week, although we are still bearish in the longer term.

Breaking below 71.0 convincingly will be a definite sign for continuation of bearish trend, although Opec may adjust their quota to counter this trend.

* 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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