Recent run in gold futures shining a positive light on all components of other commodity futures

Weekly Futures Report

10.07.09

Filed Wednesday 4:34 pm

ALL CHARTS ARE WEEKLY    

                                                            Last                               Last Week   

Nov Crude                                        69.86                                     70.56   

Nov Heat                                           178.80                                 183.10

Nov XRB (Blended Gas)                  172.65                                 174.88

In early trading on Wednesday, crude oil was higher as the report from the American Petroleum Institute indicated that supplies of fuel oil and  crude had declined for the latest reporting week. The API said that fuel inventories fell by 2.91 million barrels last week while crude stocks dropped by 254,000 barrels. This unexpected decline helped to support prices going into the release of the Department of Energy report on Wednesday. Also, general dollar weakness was a positive for the market enabling crude oil to trade more as a currency consideration than a reflection of supply and demand. Strategists still contend that this year will end up with a contraction in overall global demand, however. There have been positive supply surprises in Russia and also a lack of observation by OPEC of its own compliance. Supplies of crude oil and distillates remain above five-year averages. Gasoline demand increased last week based on credit card receipts. The recent run in gold prices has also been a positive, shining a positive light on all components of the commodity space.

 

The Department of Energy stated that crude oil stocks fell 978,000 barrels while the trade had been looking for a build of 2 million barrels. However, gasoline stocks rose 2.9 million barrels versus an expected build of 1 million barrels and distillates stocks were also higher by 679,000 barrels. These numbers are negative for refiners and their profit margins so they will probably reduce their buying of crude oil over the near future. Also, the inventory numbers suggest that demand remains weak as does the general economic recovery.

 

                                                           Support                               Resistance

Nov Crude                                             67.50                                73.00   

Nov Heat                                               175.00                             187.00

Nov Gas                                                172.00                                      182.00                                                              

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METALS

                                                                  Last                             Last Week     

Dec Gold                                                1043.90                         1008.80  

Dec Silver                                                17.495                            16.69              

Jan Platinum                                        1331.40                             1302.60

Gold traders continue to believe that the recent massive influx of liquidity by central banks into the world's economies will eventually express itself as inflation. This fear has not been reflected by other markets such as the bond and stock markets. Gold is up about 18% for the year and is making a new nominal life of contract high even though   consumer prices remain tame with many expecting the CPI to fall 0.5% this year, the first drop in five decades. Gold demand from investors is increasing while demand from fabricators is decreasing because of cost. Gold continues to offer itself as a hedge against financial risk. Also, with the injection massive liquidity into the system and interest rates very low gold really has the opportunity to become the next new asset bubble. Gold buyers believe that the concern about the ballooning US debt will continue to drive the dollar down in an orderly, or maybe even a disorderly fashion. Actually, another scenario could develop were gold becomes more like a currency and other currencies are sold to buy the metal as an anti-currency. The British pound looks like it could undergo a defacto devaluation. Another dynamic which is supportive for gold is that it's nearly impossible to increase the quantity of gold available for investment while on the other hand it's very easy to just print more money and increase the money supply. However, gold does have a way of undergoing very sharp, severe corrections flushing out late buyers whenever the relative strength index exceeds the reading of 70. Today it stands at 70.63.

 

 

                                                    Support                                      Resistance

Dec Gold                                   1000.00                                 1062.00                                                         

Dec Silver                                   16.30                                         17.93                      

Jan Plat                                     1306.00                                        1348.00    

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SOFTS

                                                                Last                          Last Week

Dec Coffee                                          134.55                                    127.80

Mar Sugar                                             22.91                                   25.39

 

Sugar came under selling pressure as monsoons in India did not do as much damage as initially feared. Fund liquidation was the key. Prices fell to their lowest levels in a week as traders sold sugar to move into gold. Generally, the market is seeing a move in speculative interest. Price rejection between 24 to 25 without stochastics supporting higher levels.

In India, coffee exports are down 21% as weather conditions reduced the harvest. This has led to a tightness in supplies. It's also expected that coffee demand will improve if the US economy improves. The US economy shrank 0.7% in the second quarter.  Dollar weakness has also been a supportive feature for the price of coffee.

           

  

                                                 Support                                  Resistance

Dec Coffee                              127.50                                     138.00       

Mar Sugar                                  21.00                                      25.15

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                                                                  Last                            Last Week Soybeans                                               9.12                                      9.262

Dec Corn                                               3.596                                    3.43     

Dec Wheat                                            4.632                                  4.566

Soybean output in Brazil is expected to come in at a record level next year as lower prices for corn is prompting the switching of crops. Corn is down about 11% this year outpacing the drop of 6.5% for soybeans.

 

The wheat forecast for western Australia has been raised as rains have alleviated stress.

 

Corn was supported by threats of an early frost.

 

                                                                Support                          Resistance

Nov Soybeans                                          8.67                                       9.41

Dec Corn                                                3.29                                      3.84

Dec Wheat                                              4.29                                       4.86

 

Chuck Kespert

NY/NY

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.