Gold Short-term Uncertainty But Long-term Bullish

GOLD
After hitting its first two targets ($780 and $840) gold is taken a breather. The Aug to Nov rally has left behind it two more targets yet to come, the next at $915 and then to $1125. For those to stay valid gold must not give a bear signal on the long term P&F chart. At the present time, without any further ups and downs, that signal would come on a move to the $630 level, some distance away. However, I would expect the action to cause more ups and downs with a resulting higher reversal signal level. For now the P&F is still comfortably BULLISH, long term wise.



As for the usual charts and indicators, they also are comfortably inside their positive zones. The Index action is still well above a positive sloping long term moving average line and the momentum indicator is comfortably in its positive zone. However, and there is so often a however, the momentum indicator is giving us a warning of underlying weakness in the recent price action. Although gold is still above its low of a few weeks ago the momentum indicator has moved below its low previous levels. It is moving lower ahead of the price giving us a warning for the continuation of downside action. Now we know that nothing goes in one direction for long without some reversal action coming to play, but what the momentum is telling us at this point is that any reversal will be short lived. Volume is also a problem but I will cover it in the next section.

Despite the weakness this past week and the potential for more, the indicators require a BULLISH long term rating until validated otherwise.

INTERMEDIATE TERM
A nasty week but the price still has not breached the intermediate term moving average line, and the line is still pointing upward. As with two weeks ago the price seems to have stopped just above the line. As with the long term, the intermediate term momentum indicator is still comfortably above its neutral line but is showing warnings of weakness. The Friday close has the indicator just below its Mid-November low ahead of the price making a similar low. The momentum indicator is now where it was just at the start of the rally in early September.

The volume indicator is the one giving us the most trouble. November has seen the daily volume level consistently quite high, above the 100,000 mark almost every day. However, that volume did nothing for the price and the volume indicator is now plunging, indicating more and more of this volume is going to the down side. Not a good sign at all. With the moving average and momentum I would still be inclined to rate the intermediate term as bullish or at worst, + neutral but if we add in the activity of the volume then I must downgrade the rating to at best, NEUTRAL.

Oil Rises a Second Day on Signs OPEC May Leave Output Unchanged

By Sophie Tan and Gavin Evans

Dec. 4 (Bloomberg) -- Crude oil gained for a second day in New York after rising from a five-week low yesterday on speculation OPEC members may keep output unchanged this week.

The oil market ``is very well supplied'' and doesn't need more production from the Organization of Petroleum Exporting Countries, Libya's top oil official told reporters late yesterday. Twenty-three of 42 analysts, or 55 percent, expect the group to maintain output at current levels when they meet in Abu Dhabi tomorrow, according to a Bloomberg News survey.

``I don't think OPEC will raise production because there has been little supply-side geopolitical tensions,'' said Steve Rowles, an analyst with CFC Seymour Ltd. in Hong Kong. ``The U.S. inventory numbers out tomorrow could affect oil prices more.''

Crude oil for January delivery rose as much as 57 cents, or 0.6 percent, to $89.88 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $89.72 at 1:22 p.m. in Singapore.

The contract rose 60 cents, or 0.7 percent, to $89.31 a barrel yesterday, a 9.6 percent slide from the record $99.29 reached on Nov. 21. Prices fell to $87.14 yesterday, the lowest since Oct. 24, after a report showed manufacturing in the U.S., the world's largest oil consumer, expanded at the slowest pace in 10 months in November.

Inventories

An Energy Department report tomorrow will probably show U.S. crude-oil stockpiles fell 900,000 barrels last week, based on the median estimate from a Bloomberg News survey of 10 analysts. Inventories held 313.2 million barrels on Nov. 23, or 3 percent more than the five-year average for the period.

Gasoline stockpiles probably gained 1.2 million barrels, while distillates, including heating oil and diesel, probably declined by 150,000 barrels, based on the survey.

Oil prices plunged last week after crude oil stockpiles fell less than forecast, even as refiners unexpectedly increased operating rates to a 10-week high. Analysts are picking refining rates rose to 89.5 percent, the fourth increase in five weeks.

``The market could be very volatile around some of these announcements,'' said Tom Hartmann, commodity broker at Altavest Worldwide Trading Inc. in Mission Viejo, California. ``The market really needs to get back above $90-$91 to have some sort of bullish footing again.''

Brent crude oil rose as much as 45 cents, or 0.5 percent, to $90.25 a barrel on the London-based ICE Futures Europe exchange and traded at $90.20 at 1:12 p.m. Singapore time. Yesterday, it closed at a premium to the Nymex futures for the first time since July.

``Brent has been definitely the better performer'' in recent weeks,'' Altavest's Hartmann said. ``It could be some sort of bet on the dollar. The world is shifting to a different product as their standard.''

Refining Capacity

Oil refiners would be unable to absorb an increase in OPEC output because of constraints on the amount of crude they can turn into fuels, potentially causing prices to drop below $80 a barrel, Merrill Lynch & Co. said in a report e-mailed yesterday.

``The incremental supply of crude oil will likely exceed the market's ability to refine it'' because of limited growth in processing capacity, Merrill analysts led by Francisco Blanch said in the report.

Refiners have limited means to increase their cracking capacity, or the ability to turn more of the heavy oil typically produced by OPEC countries into lighter fuels such as gasoline and naphtha, according to Merrill. This constraint indicates additional OPEC supply may exceed demand.

Platinum Rises as Strike May Crimp South African Production

By Dave McCombs

Dec. 4 (Bloomberg) -- Platinum futures gained for a fourth day in Asia as South Africa's biggest labor union started a nationwide strike to protest fatal mining accidents and the government said it would probe the industry's practices.

The government will check about 700 mines, Chief Inspector of Mines Thabo Gazi said yesterday. He declined to say when the process would start. South Africa supplies about 80 percent of the world's platinum.

``Whenever supply starts to tighten, the price will react,'' Jonathan Barratt, managing director of Commodity Broking Services in Sydney, said today by phone. ``Anytime there is news about mine strikes or shutdowns, you get fund managers dipping more into the market, and that's what you've got today.''

Platinum for October delivery rose 15 yen, or 0.3 percent, to close at 5,027 yen a gram ($1,418 an ounce) on the Tokyo Commodity Exchange.

The metal for immediate delivery rose to $1,461.75 an ounce, a 0.1 percent gain from late yesterday in New York. Palladium was 0.5 percent higher at $348 an ounce.

South Africa's Solidarity trade union spokesman Reint Dykema yesterday estimated the government's safety review may take between three months and a year.

Mining deaths in the country, the world's biggest producer of gold and platinum, have risen to 201 this year compared with a total of 199 for 2006, Solidarity said. The largest labor body, the National Union of Mineworkers, is holding a national one-day strike today to protest against what it has called a ``general lack of safety.''

Platinum has soared about 29 percent this year, compared with 24 percent for gold, on expectations demand for the metal's use in vehicle emissions filters and jewelry will grow faster than supplies.

Why Oil price is a headache for the Fed

By Stephen Clayson
LONDON (ResourceInvestor): The gold price may be struggling to hold above $800 an ounce now but come December 11 it may be a very different story. Why? Because comments from Federal Reserve Chairman Ben Bernanke last week indicated rather strongly that another rate cut is in the offing for the U.S., and we’ll know for sure when the Federal Open Market Committee announces its next rate decision on December 11.

Bernanke said on Thursday that turbulence in financial markets over the past month or so has “partially reversed the improvement that occurred in September and October”. He also noted that recent U.S. economic data has been “on the soft side” – quite strong words for a central banker. One suspects that another quarter point cut is now almost a done deal, particularly given the weak economic data that we saw during November.

Could another half point cut be on the cards? You never know. After all, it would be of quite some benefit to the legions of U.S. consumers who are at this very moment loading themselves up on credit card debt in the hope of buying themselves a happy Christmas.

Furthermore, data released by the National Association of Realtors late last month showed that during October, sales of existing homes dropped 20.7 per cent versus one year earlier, while the median home price was down 5.1 per cent versus a year ago. The strength of the housing market is fairly crucial to the confidence of consumers and the health of the economy in general, so numbers like that make for worrying reading.

The other worry is oil. Although oil prices have come down quite significantly from their November peak of almost $100 a barrel, they are still pretty high, even adjusting for the weakness of the dollar, which pushes the nominal oil price higher without altering the real price. The prospect of $100 oil does though have an unhelpful psychological effect.

The oil price gives the Fed an inflationary headache, but it also puts a strain on the economy of the world’s biggest oil consumer. And of late, the Fed has given the impression that it prefers to look out for economic growth than to stamp on inflation as soon as it rears its head. In any case, the Fed does not feel that inflation in the U.S. has yet shown signs of accelerating alarmingly, although the trick to controlling it could well be to act before it does so.

With inflation in the eurozone, thanks in part to the greater power of workers there to secure wage increases, running quite high and the European Central Bank making quite hawkish noises, rates there are less likely to fall, meaning that the euro, the dollar’s obvious substitute, is likely to remain strong.

This will accentuate the impact of any further U.S. rate cuts. Although there has, and will continue to be, a flight into the euro as U.S. rates fall, there is also room for gold in the equation. Those who cut their teeth viewing the dollar as the anchor of the world financial system and still see the euro as an upstart currency that has yet to prove itself, and there seem to be more of them around than one might think, have only one place to go – into gold.

Gold’s recent ascent above $800 an ounce was triggered by a quarter point cut in U.S. rates at the end of October that followed on from a half point cut in September, and another cut, even of just a quarter point, will probably be all the yellow metal needs to entrench itself above $800 and maybe even break $900 in time for Christmas.

mid term outlook

Medium-term Outlook (Spot Gold)
Gold prices are expected to trade within the range $837 - $770. Breaking of either level may decide the direction. $801 may act as the major resistance followed by $824 and $836. Supports are $754 and $744.

Oil prices edged higher yesterday but failed to cross above $90 a barrel. Traders are awaiting the OPEC decision regarding increasing the output, when the cartel meets later this week. Even though a raise in output is widely expected, the signals from the member countries have been mixed of late especially after the sharp decline in prices in the past week.

Crude oil January in NYMEX traded in the range $87.14 - $89.99 and closed at $89.31 ($88.71).
Last day, MCX gold February opened at 10155, traded in the range of Rs 10026 – Rs 10203 and closed at Rs 10153 per 10 gram.
Copper February in MCX opened at 280.05, traded in the range 280.10– 269.20 and closed at Rs 269.70 per kg.

Technicals – MCX (Intra day calls)

CRUDE OIL (December) BULLISH ABOVE 3493 BEARISH BELOW 3478

GOLD (February) BULLISH ABOVE 10150 BEARISH BELOW 10115

SILVER (March) BULLISH ABOVE 18888 BEARISH BELOW 18805

COPPER (February) BULLISH ABOVE 272.60 BEARISH BELOW271.80

LEAD (December) BULLISH ABOVE 118.20 BEARISH BELOW 117.80

NICKEL (December) BULLISH ABOVE 1079 BEARISH BELOW 1074

ZINC (December) BULLISH ABOVE 199.40 BEARISH BELOW 99.00

MCXARUN
9994500540

long view

GOLD
LIKELY TO TEST 11000 WITH ANY CLOSE ABOVE 10430/10700 & 10775, WHILE CLOSE BELOW 10025/9950 TEST 9800-750 ATLEAST(FEB)
SILVER
LIKELY TO TEST 22000 UPTO 22500 WITH ANY BREAK & CLOSE ABOVE 19975/20450/21325-500, ONLY CLOSE BELOW 18550/18300/18075 & 17750 DOWN TREND AGAIN(MAR)
CRUDE OIL
LIKELY TO TEST 3400-3350 WITH ANY CLOSE BELOW 3440 WHILE CLOSE ABOVE 3775/3915 UPTREND AGAIN(DEC)
COPPER
LIKELY TO TEST 25052/246/242 UPTO 237 WITH ANY BREAK & CLOSE 263.5/259, WHILE ANY CLOSE ABOVE 282/293 UPTREND AGAIN(FEB)

MCXARUN
9994500540

OUT LOOK

February gold closed higher on Monday as it consolidated some of last week's decline. The high-range close sets the stage for a
steady to higher opening on Tuesday. Stochastics and the RSI remain bearish signaling that sideways to lower prices are
possible near-term. If December extends last week's decline, November's low crossing at 780.40 is the next downside target.
Closes above the 20-day moving average crossing at 813.40 would confirm that a short-term low has been posted. First
resistance is the 10-day moving average crossing at 809.70 then the 20-day moving average crossing at 813.40. First support is
today's low crossing at 783.00 then November's low crossing at 780.40.

March silver closed higher on Monday as it consolidated some of last Friday's decline. The high-range close sets the stage for a
steady to higher opening on Tuesday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways
to lower prices are possible near-term. If March extends last month's decline, the reaction low crossing at 13.500 is the next
downside target. Closes above the 20-day moving average crossing at 14.869 are needed to confirm that a short-term low has
been posted. First resistance is the 10-day moving average crossing at 14.610 then the 20-day moving average crossing at
14.869. First support is today's low crossing at 13.960 then the reaction low crossing at 13.500.

January crude oil closed slightly lower on Monday as it extended last week's decline and tested the 38% retracement level of this
fall's rally crossing at .8741. A short covering rally tempered early losses and the mid-range close sets the stage for a steady
opening on Tuesday. Stochastics and the RSI are oversold but remain bearish signaling that sideways to lower prices are
possible near-term. If January extends today's decline, the 50% retracement level of this fall's rally crossing at .8374 is the next
downside target. Closes above the 10-day moving average crossing at 94.10 would temper the near-term bearish outlook. First
resistance is the 25% retracement level crossing at 91.51. Second resistance is the 20-day moving average crossing at 93.97.
First support is today's low crossing at 87.14 then the 50% retracement level crossing at .8374.

January Henry natural gas gapped down and closed lower on Monday as it extended last week's decline below September's low
crossing at 7.561. A short covering rally tempered early losses and the high-range close sets the stage for a steady to higher
opening on Tuesday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices
are possible near-term. If January extends this week's decline, weekly support crossing at 6.801 is the next downside target.
Closes above the 10-day moving average crossing at 7.685 would confirm that a short-term low has been posted. First
resistance is the 10-day moving average crossing at 7.685 then the 20-day moving average crossing at 7.946. First support is
today's low crossing at 7.038 then weekly support crossing at 6.801.

today's datas

Tuesday, 4 December 2007

all times GMT

(last release in parentheses)



0001 UK November BRC retail sales monitor

0030 Australia October retail sales (0.8%)

0030 Australia October building approvals (4.2% y/y)

0930 UK November PMI, construction (57.4)

1000 Eurozone October PPI (0.4% m/m)

1000 Eurozone October PPI (2.7% y/y)

1400 Canada Bank of Canada interest rate decision

2230 Australia November AIG performance of service index (53.2)

2230 Australia Reserve Bank of Australia interest rate decision

GENERAL MARKET CONDITIONS

Markets are positioning themselves for 2008. The key concern for all of them is the extent of recession (if any) in US and what will be the top for crude oil prices. Energy prices and US and growth factors in other G7 nations will dictate the US dollar in 2008. I firmly believe that the US dollar should recover in the second half of 2008 as lagging effects of a stronger currency and higher energy prices results in cutting of interest rates by the ECB, bank of England and others, which will result in narrowing down of interest rate differentials. If interest rate differentials and growth differentials narrow between US and rest of the world (including emerging markets), the US dollar is bound to gain. However in the short term this gap will widen and more US dollar weakness in store. US dollar weakness implies higher precious metals and energy prices.

Zinc, lead, nickel, copper and other base metals took a beating on expectations of slower growth in 2008. Over the past three years base metals have been supported by strikes by mine workers in different mines across the world (apart from fundamentals of demand and supply). Base metals will be volatile for the rest of December as any confirmation that US economy is not slowing could result in paring of some of the November losses. Most of the base metals are yet to test 2004 lows, therefore there could be room for more losses before the next leg higher. Any five percent to ten percent fall in base metals switches the risk to return ratio in favor of the buyer.

GOLD -- FEBRURAY FUTURE

Double bottom has been formed at $778 and gold could test $818 and $844 in short term as long as $778 holds.

SILVER -- MARCH FUTURE

Silver can test $1474 and $1494 as long as $1406 holds. Falls below $1406 then $1396 and $1376 are the targets.