Gold makes new high again while WTI shows exhaustion

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  • Wednesday, 20 Oct 2010

GOLD started last week at 1355 and traded range-bound initially while being well-supported at 1340 regions.

The yellow metal rallied on Thursday after unexpected increase in US jobless claim signalled a slow recovery. Prices hit a new weekly high at slightly below 1387 amid continual weakening of greenback.

On Friday, FED chairman Ben Bernanke hinted that the central bank would likely go on with another round of quantitative easing. However, gold prices slid down to 1362 regions as investors believed the current high prices have been factored-in with no clear sign of further money supply.

The metal closed the week up 1.0% at 1368.

Gold is up 26% so far this year, the longest winning streak since the 1920s. It has so far outperformed global equities, treasuries and most industrial metals. Although the rally has been very strong so far, market analysts reckon the upside potential for gold is still largely open if global currencies continue to slide.

WTI Crude started last week at 83.0 and trended steadily downwards to 80.9 regions by Tuesday inversely to dollar recovery. WTI Crude then recoiled up after dollar extended its losses, returning the appeal of commodities as a hedge.

On Thursday, WTI Crude reached 84.1 regions and slid on presumed weaker economic demands after US job market tightened.

Crude oil inventories dropped by 0.4 million barrels to 360.5 million for the week ended Oct 8 against median forecast of up 1.5 million barrels.

According to the Energy Department, US fuel consumption fell 0.7% to 18.3 million barrels daily and recorded at lowest levels since last November. WTI Crude closed the week down 1.9% at 81.5.

Technical analysis

Gold prices pushed to another new record high at 1387 as forecast upon breaking above 1365. Despite the strong bullish sentiment, the metal ended the week with a bearish day candle with divergence in strength.

Therefore, we suspect a correction may entail if the market fails to challenge 1387 levels this week that may spike to 1400 regions. If the market turns down this week, we aim to drive our short trades to 1330 regions as our targets.

WTI Crude made a brief visit to the 84.0 level but was unable to hold on to the gains. It is likely to trade between 80.0 and 84.0 in the coming week with a bullish bias.

Breaking the resistance at 84.0 will likely push WTI Crude to the 87.0 region. Should it break the support at 80.0, it will likely make a trip to 77.8 where the 200 days moving average rests.

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

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