Tuesday, December 2, 2014

Yellow or Black Gold, Which if Either to Believe!



There were dramatic moves in both Gold and Oil yesterday and both have retraced some of that dramatic move today.  Initially, both looked like important trend reversals, but there are differences which may point to a more lasting recovery for one over the other.  

 

 The decline in Crude oil since June has been dramatic.  When I wrote about the crude oil topping pattern (‘Where to Oil; With Too Many Geopolitical Balls in Air’) 2 days after the contract high, the 10:1 (reward:risk) objective of the short recommended, though met within a month, was far from what has eventually been made available.  Instead, crude prices fell through the $95 level and hit a low on Monday morning of $63.72 (Jan 2015 future).  

 

The recovery in January Crude (CLF5) though impressive, was unable to best the ‘mid’ from Friday’s decline, marked at $69.825.  The settlement fell $0.83 shy of a more meaningful recovery.  There is still time for the contract to show that the decline on Friday was not a precursor to still lower levels, but the time is running out.  A settlement above $69.825 by tomorrow (Wednesday, Dec 3) in necessary in order to discount the bearish implications of Friday’s decline.

 

Looking now to gold, we would note that Monday’s early plunging prices tested the month old, multi-year low (May/April 2010).  For the January 2015 contract (GCF5), the test held and prices recovered to best the previous session (Friday) high.  The settlement yesterday was actually well above the prior session high and a ‘bullish engulfing’ was formed.  

 

To confirm the likely continued impact from this bullish technical development, a consistent settlement above $1189.15 through Thursday would help to verify the bullish implications of this ‘engulfing’ pattern.  

 

Should it prove that oil stays low while gold firms as possibly suggested by recent technical developments, it may be that weaker global economic prospects and stronger supplies of crude will weigh on crude prices despite a relatively strong and sustainable performance in U.S. economic growth.  Additionally, a recovery in gold, highlighted the nearly 10% advance in CFTC described ‘non-commercial’ net longs in the week ending last Tuesday, may be supported by domestic U.S. economic developments and the belief that global deflationary concerns and conditions will subside.  

 

The picture may not be perfectly clear as yet, but the puzzle pieces are nearly all in place.    

 


 

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