Crude oil drops for the 4th day as weak economic data in the US indicated recovery is bumpy and slow. Moreover, credit risk in the Eurozone sent the euro to a 1-week low against the USD, thus reducing demand for commodities.
International Energy Agency (IEA) released its monthly energy report today. Its forecast on oil demand remained unchanged at 86.3M bpd, up +1.6% yoy, in 2010 as driven by non-OECD countries, especially in China. Oil demand recovery in OECD countries will remain sluggish.
On the supply side, production from non-OPEC countries was revised slightly downward to 51.5M bpd (December forecast: 51.6M bpd) in 2010. That said, it';s still up +0.45 from a year ago. Lower non-OPEC production suggested call on OPEC which is expected to reach 29.1M bpd.
IEA estimated OPEC';s production rose 75K bpd to 29.1M bpd (including Iraq which is not bound by quota) in December, indicating reduction in compliance level to 58% from 60% in November. OPEC production is a key to the demand/supply balance. While the OPEC needs to adhere more strictly to quotas so as to tighten the market, we worry that members will be tempted to produce more as oil prices strengthen and spare capacity stays above historical average.
After the ECB';s comment that Greece will not receive special treatment for its debts, worries about credit default risk intensified and the euro got hammered. EURUSD falls to 1.4384 from 1.4498, the biggest drop in a month. The euro also decline against 14 out of 16 major currencies as the Greek issue may be contagious to other European countries and it hurts confidence on the single currency. 5-year CDS spread on Greek loans rose to 329.52 Thursday, from 252.2 a week ago. A comparable spread on German loans was 29.97 Thursday.
Despite a safe-haven for sovereign default, gold price slides in tandem with other commodities as USD rallies. The February contract drops to 1136 in European morning after rising for 2 days. While silver and platinum also dip, palladium extends the rally to 450 (intra-day high at 415.95),.The market is bullish on the metal based on the forecast of a better demand/supply balance.
GOLD REPORT:
Intraday bias in Gold remains neutral for the moment. But note that recovery from 1075.2 might have completed at 1163 already, after missing 1169.3 fibonacci resistance. Break of 1119.2 support will confirm this case and bring deeper fall to retest 1075.2 support first. Break there will indicate that the third leg of the correction pattern from 1227.5 has started. On the upside, while another rise cannot be ruled out, upside will possibly be limited by 61.8% retracement of 1227.5 to 1075.2 at 1169.3.
In the bigger picture, rise from 681 is expected to develop into a set of five wave sequence with first wave completed at 1007.7, second wave triangle consolidation completed at 931.3. Rise from 931.3 is treated as the third wave and has possibly completed at 1227.5 after missing 100% projection of 681 to 1007.7 from 931.3 at 1258. Deeper pull back could now be seen to 1026.9/1072 support zone, or even further to retest 1000 psychological level. But downside should be contained well above 931.3 support and bring up trend resumption to another high above 1227.5.
SILVER REPORT:
Intraday bias in Silver remains neutral for the moment as consolidation from 18.925 might still be in progress. But after all, with 18.055 support intact, another rise is still in favor. Break of 18.925 will target retest on 19.50 high next. However, note that break of 18.055 will indicate that rise from 16.765 has completed and will flip bias back to the downside for this support.
In the bigger picture, the stronger than expected rebound from 16.75 dampens the view that silver has topped out 19.50 and revives the possibility that rise from 12.435 is still in progress. Nevertheless, note that whole medium term rise from 8.4 is is treated as part of the long term, wide range, consolidation pattern that started at 21.44 back in Mar 08. Hence, even in case of another rise, upside is expected to be limited inside this 19.55/21.44 resistance zone and bring another medium term fall. On the downside, break of 16.765 support will revive the case that silver has topped out in medium term and will bring deeper decline towards lower medium term trend line at 14 level.
CRUDE REPORT:
Crude oil closed below 80 for the second day Thursday. Weak economic data, persisting worries about China's cooling policies and dismal energy demand are key reason for the correction. In Asia session today, the February contract continues to edge lower, poising for the first weekly decline since December 7.
Commodities will likely trade with downside bias in the near-term as investors would like to watch closely about the development signaling the government has stepped up to control asset bubbles.
Investors' appetite for 'higher-yield' assets diminished obviously as we see the dollar and yen rally against major currencies. USD rises to 1.443 against the euro from 1.45 yesterday. The ECB decided to keep the main refinancing rate unchanged at 1% and reiterated interest rates are at 'appropriate' levels.
When asked about debt problem in Greece, the President Trichet said that there's no special treatment for the country. This increased worries about the negative impact of the Greek problem on the 16-nation region Eurozone. Greek GDP is 2.5-3% of the Eurozone average. The consolidated deficit for the Eurozone as a whole is 6.5-7% of the GDP with Greece contributing a big portion of it. According the finance minister, George Papaconstantinou, Greek deficit will be reduced to 8.7% of GDP in 2010 from 12.7% last year. In 2011, it will be further cut to 5.6%. The figure will be below EU's limit of 3% of GDP by 2012. However, the EU doubted about the deficit figures provided by the government, suggesting actual figures may be higher.
Gold price rose +0.5% to close at 1143. At the newly released report, the World Economic Forum raised concerns about another asset bubble which is driven by excess liquidity. 'The risk of an asset price collapse remains the strongest risk on the landscape on the severity and likelihood axes illustrates the continuing uncertainty about the resilience of the global economy and the effectiveness of fiscal and monetary responses, governance and regulation. Concerns abound about the decline in the dollar and low interest rates fuelling another bubble, this time liquidity rather than debt-driven'. Sky-high deficits in the US and the UK as well as failure to unwind stimulus policies timely are always worrying people. Such rising sovereign default risk is supportive to gold.
Platinum and palladium prices stay firm after surging +1.9% and +4.3%, respectively, Thursday. PGMs have been trading with strong momentum as the newly launched US-based ETF boosted investment demand. Current total holdings of platinum and palladium increased to 120K oz and 125K oz, respectively, from below 10K oz in the beginning of the year.
International Energy Agency (IEA) released its monthly energy report today. Its forecast on oil demand remained unchanged at 86.3M bpd, up +1.6% yoy, in 2010 as driven by non-OECD countries, especially in China. Oil demand recovery in OECD countries will remain sluggish.
On the supply side, production from non-OPEC countries was revised slightly downward to 51.5M bpd (December forecast: 51.6M bpd) in 2010. That said, it';s still up +0.45 from a year ago. Lower non-OPEC production suggested call on OPEC which is expected to reach 29.1M bpd.
IEA estimated OPEC';s production rose 75K bpd to 29.1M bpd (including Iraq which is not bound by quota) in December, indicating reduction in compliance level to 58% from 60% in November. OPEC production is a key to the demand/supply balance. While the OPEC needs to adhere more strictly to quotas so as to tighten the market, we worry that members will be tempted to produce more as oil prices strengthen and spare capacity stays above historical average.
After the ECB';s comment that Greece will not receive special treatment for its debts, worries about credit default risk intensified and the euro got hammered. EURUSD falls to 1.4384 from 1.4498, the biggest drop in a month. The euro also decline against 14 out of 16 major currencies as the Greek issue may be contagious to other European countries and it hurts confidence on the single currency. 5-year CDS spread on Greek loans rose to 329.52 Thursday, from 252.2 a week ago. A comparable spread on German loans was 29.97 Thursday.
Despite a safe-haven for sovereign default, gold price slides in tandem with other commodities as USD rallies. The February contract drops to 1136 in European morning after rising for 2 days. While silver and platinum also dip, palladium extends the rally to 450 (intra-day high at 415.95),.The market is bullish on the metal based on the forecast of a better demand/supply balance.
GOLD REPORT:
Intraday bias in Gold remains neutral for the moment. But note that recovery from 1075.2 might have completed at 1163 already, after missing 1169.3 fibonacci resistance. Break of 1119.2 support will confirm this case and bring deeper fall to retest 1075.2 support first. Break there will indicate that the third leg of the correction pattern from 1227.5 has started. On the upside, while another rise cannot be ruled out, upside will possibly be limited by 61.8% retracement of 1227.5 to 1075.2 at 1169.3.
In the bigger picture, rise from 681 is expected to develop into a set of five wave sequence with first wave completed at 1007.7, second wave triangle consolidation completed at 931.3. Rise from 931.3 is treated as the third wave and has possibly completed at 1227.5 after missing 100% projection of 681 to 1007.7 from 931.3 at 1258. Deeper pull back could now be seen to 1026.9/1072 support zone, or even further to retest 1000 psychological level. But downside should be contained well above 931.3 support and bring up trend resumption to another high above 1227.5.
SILVER REPORT:
Intraday bias in Silver remains neutral for the moment as consolidation from 18.925 might still be in progress. But after all, with 18.055 support intact, another rise is still in favor. Break of 18.925 will target retest on 19.50 high next. However, note that break of 18.055 will indicate that rise from 16.765 has completed and will flip bias back to the downside for this support.
In the bigger picture, the stronger than expected rebound from 16.75 dampens the view that silver has topped out 19.50 and revives the possibility that rise from 12.435 is still in progress. Nevertheless, note that whole medium term rise from 8.4 is is treated as part of the long term, wide range, consolidation pattern that started at 21.44 back in Mar 08. Hence, even in case of another rise, upside is expected to be limited inside this 19.55/21.44 resistance zone and bring another medium term fall. On the downside, break of 16.765 support will revive the case that silver has topped out in medium term and will bring deeper decline towards lower medium term trend line at 14 level.
CRUDE REPORT:
Crude oil closed below 80 for the second day Thursday. Weak economic data, persisting worries about China's cooling policies and dismal energy demand are key reason for the correction. In Asia session today, the February contract continues to edge lower, poising for the first weekly decline since December 7.
Commodities will likely trade with downside bias in the near-term as investors would like to watch closely about the development signaling the government has stepped up to control asset bubbles.
Investors' appetite for 'higher-yield' assets diminished obviously as we see the dollar and yen rally against major currencies. USD rises to 1.443 against the euro from 1.45 yesterday. The ECB decided to keep the main refinancing rate unchanged at 1% and reiterated interest rates are at 'appropriate' levels.
When asked about debt problem in Greece, the President Trichet said that there's no special treatment for the country. This increased worries about the negative impact of the Greek problem on the 16-nation region Eurozone. Greek GDP is 2.5-3% of the Eurozone average. The consolidated deficit for the Eurozone as a whole is 6.5-7% of the GDP with Greece contributing a big portion of it. According the finance minister, George Papaconstantinou, Greek deficit will be reduced to 8.7% of GDP in 2010 from 12.7% last year. In 2011, it will be further cut to 5.6%. The figure will be below EU's limit of 3% of GDP by 2012. However, the EU doubted about the deficit figures provided by the government, suggesting actual figures may be higher.
Gold price rose +0.5% to close at 1143. At the newly released report, the World Economic Forum raised concerns about another asset bubble which is driven by excess liquidity. 'The risk of an asset price collapse remains the strongest risk on the landscape on the severity and likelihood axes illustrates the continuing uncertainty about the resilience of the global economy and the effectiveness of fiscal and monetary responses, governance and regulation. Concerns abound about the decline in the dollar and low interest rates fuelling another bubble, this time liquidity rather than debt-driven'. Sky-high deficits in the US and the UK as well as failure to unwind stimulus policies timely are always worrying people. Such rising sovereign default risk is supportive to gold.
Platinum and palladium prices stay firm after surging +1.9% and +4.3%, respectively, Thursday. PGMs have been trading with strong momentum as the newly launched US-based ETF boosted investment demand. Current total holdings of platinum and palladium increased to 120K oz and 125K oz, respectively, from below 10K oz in the beginning of the year.
