Gold turns bearish while WTI continues sideways

  • Community
  • Thursday, 28 Oct 2010

GOLD started last week at 1366 and appreciated initially to 1374 regions.

The yellow metal plunged sharply on Tuesday after China hiked its interest rate unexpectedly.

The measure, which is being used to contain inflation and to cool down the property bubbles in China, pulled down gold prices rapidly to 1332 regions.

Gold was capped below 1349 level as it drove lower to reach 1314 regions after the greenback strengthened. This first weekly decline since mid-September eroded most of the accumulated gain in October.

The metal closed the week down 2.8% at 1328.

Traders are currently eyeing the meeting of G-20, waiting for any resolution or comment on diffusing the tension and preventing a currency war.

The outcome of the policies will effectively influence the direction of gold prices while still waiting for another FED meeting in two weeks’ time.

For the time being, gold may poise for sideways correction in 1300 regions before new market fundamentals come in again.

WTI Crude, meanwhile, started last week at 81.8 and trended steadily upwards to 83.9 regions.

The market plunged to 79.8 after the US dollar’s strength remained jittery.

On Wednesday, WTI Crude spiked up to 82.5 and consolidated, tracing very closely the trend of the greenback’s strength.

Before the weekend, WTI Crude slid down to 80.1 on concern that a slow-down in global economy will cut energy consumption.

Another separate report showed that oil production and refining in China grew the least in 18 months, suggesting lower demand for oil in China. However, market closed the week relatively unchanged, up 0.1% at 81.9.

Crude oil inventories increased by 0.7mil barrels to 361.2mil for the week ended Oct 15, compared with analysts’ forecasts of 1.5mil barrels increment. Crude oil prices may decline next week, as the fuel demand will likely reduce in China after the government aims to cool down the economy.

Technical analysis

Last week, gold was capped at 1374 resistance and failed to spike higher.

Market then plunged to 1314 before closing at 1328 regions.

This coming week, gold is likely to consolidate sideways after the relatively sharp decline, with possibility of breaking lower to reach the psychological support level 1300.

We foresee that gold may re-test 1350 before sliding again.

WTI Crude consolidated within the range 79.9-84.5 regions last week, continuing the indecisiveness from the week before. The bull tried to challenge 84.0 resistance but failed although the market still held strong.

This week, we reckon crude oil is likely to go down to 77.0 regions. Risk for short position should ultimately be managed at 84.5 regions.

Breaking above 84.5, WTI Crude is likely to go to 87.0 regions to re-test the post-crisis high.

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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