Gold makes new record high again while WTI reaches 21-week high

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  • Wednesday, 13 Oct 2010

GOLD started last week at 1317 and traded range-bound initially while being well-supported at 1312 regions. The yellow metal rallied again after Japan cut its key interest rate amid the weakening US dollar.

On Thursday, gold reached record year-high 1364 but retreated fast on profit-taking in markets. The bull was thrown down to 1325 regions after better-than-expected unemployment claims figures were announced.

The decline marked 2.9% drop that was the largest retracement since August.

On Friday, gold prices bounced back up to 1349 after US non-farm payrolls declined by 95,000 in September, far worse than forecast by the media.

The disappointing employment number paved the way for FED to possibly embark on another round of quantitative easing in near future. Gold closed the week up 2.1% at 1346.

Gold has been up 21% so far this year and has outperformed global equities, treasuries and most industrial metals. The metail is likely to go up further this week, as there are growing tendencies for countries to maintain competitiveness in the global market by debasing their own currency.

This latent “currency war” is now being discussed at the G7 meeting for fear of driving gold to skyrocketing prices if most western and emerging market currencies dive in spirals.

Meanwhile, WTI Crude started last week at 81.78 and trended steadily upwards to 83.0 regions amid weakening dollar.

On Wednesday, WTI Crude shot up definitively above 83.0 regions and reached 84.1 regions despite an increase in crude stockpiles.

Crude Oil inventories increased by 3.1 million barrels to 260.9 million for the week ended Oct 1, compared with analysts’ forecasts of a relatively smaller increment of 0.5 million barrels.

It is worth noting however, that while crude oil stockpiles have gone up, the stockpiles for gasoline, a product derived from crude oil, is decreasing. The rally continued until WTI Crude made a new high at 84.4, highest so far in the past 21 weeks. WTI Crude closed the week up 1.4% at 82.9.

Unemployment claims and non-farm payroll data had the same effects on WTI Crude as to gold. WTI Crude declined from the high off 84.4 to 80.3 after the better-than-expected unemployment claims figures were announced, but bounced back on Friday to 83.1 regions after US non-farm payroll data was released.

This hinted that most of the current movements in gold and WTI Crude Oil prices and assets that are generally priced in US dollars, correlate mostly with the strength of US dollar itself.

Technical analysis

Gold enjoyed another gravity defying week and created a new record high at 1364.

However, the high was created with a reversal day-candle that signified losing steam. Therefore, we suspect Gold may have a correction week ahead if 1364 remains intact.

The trend is still bullish unless the 20 days moving average at first support -- 1300 and the 50 days moving average at second support -- 1255 are broken convincingly.

For the week ahead, we would prefer to short near the high in view of likely consolidation between 1300 and 1364. Should the record high at 1364 be broken, we can expect gold to climb to 1386.

WTI Crude managed to break the heavy resistance at 83.0 but was unable to close the week above this crucial level. WTI Crude is likely to make a pullback to the 80.0 levels before charging above 83.0 again to challenge the 87.0 levels if the bull charges again.

For the week ahead, we anticipate a correction between 80.0 and 83.0 regions. Another strong support is seen below the market at 77.7 where the 200 days moving average lies.

* 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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