Gold makes new all-time high as WTI follows suit

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  • Wednesday, 10 Nov 2010

GOLD started last week at 1362 and traded relatively quiet between 1349 and 1365 regions.

After the FOMC meeting on Wednesday, US Fed officials announced US$600bil for the second wave of the quantitative easing (QE2). The measure reinforced weak dollar policy and also reversed gold prices from 1325 regions to the topside of 1394 regions within a day.

On Friday, the metal went up further and made another all-time high at 1398 regions, before closing the week up 2.6% at 1393.

Gold has been up 27% so far this year and has outperformed global equities, treasuries and most industrial metals. It is likely to go up further until Fed neutralises its monetary policy, with some analysts predicting it to reach 1650 within the next twelve months.

Defending the importance of quantitative easing for US (and global) economic recovery, Fed chairman Ben Bernanke came under fire for his monetary policy measure, as the excess liquidity from the US created concerns among many countries that are threatened by the possible inflow of hot money and possible inflation.

Further protectionism measures from different countries will be expected this month.

Meanwhile, WTI Crude started last week at 81.4 and bullishly running up to 87.4 regions by Friday, the highest level so far in two years.

The bullishness of WTI Crude can be attributed to the weakening of the greenback, unchanged level of unemployment and unexpected gain in US non-farm payroll on Friday.

The Saudi Arabian Oil Minister also commented early last week that crude prices within a range of between 70 and 90 is satisfactory for global customers, amid earlier indication by the kingdom of a preferred target of US$75 per barrel.

This may come after taking into consideration the deteriorating value of the US dollar.

Crude oil inventories increased by 2mil barrels to 368.2mil for the week ended Oct 29, compared with analysts’ forecasts of an increment of 1.7mil barrels.

WTI Crude closed the week up 7.3% at 87.3, showing persistent bullishness even until the end of the trading session.

Technical analysis

Gold trended higher and made a new record high at 1398 once again on dollar weakness. Last Thursday, the metal made a US$45 move – almost double the average daily range after the announcement of QE2.

Although the trend is still bullish, we are cautious about the bullishness in view of a doji forming last Friday in the daily charts.

Hence, we would prefer to wait for a pullback before buying in. On the upside, gold would likely surpass the 1400 psychological level and touch 1450 within this month.

Should gold turn south as we expect, look for gold to be supported at 1372 followed by 1325 which will present good buying opportunities.

Last week, WTI Crude traded higher like all dollar-denominated instruments. WTI Crude broke out of the range at 84.0 and traded to a high of 87.4 – the highest figure in two years.

The price has risen more than 7.3% in the last five sessions, and rising in seven of the last 10 trading days.

We expect WTI Crude to face some resistance in the 87.0 to 88.0 range and then again at around 90.0 regions.

Once the market breaches these levels, it is well into triple-digit territory. Support can be found at the 84.0 levels.

• Dar Wong, Paul Chung and Wahyu PY are the research team members of You may reach them through the website

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