Crude oil rallied the most in 3 months after the IEA report stated that crude stocks fell be a greater than expected 5.2 million barrels. Inventories fell to a five month low while demand reached its highest level of the year. Oil was also supported by the communiqué at the conclusion of the Federal Reserve Open Market Committee meeting. The Fed stated that they will leave interest rates at exceedingly low levels for several years. In addition to the prospects for a weaker dollar due to Fed policy, the market was also supported by the price decline that was triggered by recession fears and market volatility not seen since 2008. Lower prices will encourage demand. Going into Wednesday’s session, crude was lower by 9.2% for the year. The spread between Brent oil and West Texas Intermediate widened to a record high. As for the inventory report, crude stocks were lower by 5.23 million barrels to 349.8 million barrels. The trade had been looking for an increase of 1.35 million barrels. Demand surged by 3.3 percent to 20.3 million barrels a day. Money flow in crude oil continues to be negative, however. The IEA also put out a report suggesting that threats to global economic growth may cut demand growth next year. Traders believe that if the price of Brent should fall to $80 a barrel, OPEC would step in and cut production levels.

As for the chart, this looks constructive. A price rejection occurs on Tuesday with a positive performance on Wednesday. This suggests a retracement back towards $85 a barrel.

Gold surged to new nominal highs over the past five trading sessions. The term nominal is used because some say that gold’s historic high was $850 an ounce in 1980. Priced today, $850 in 1980 would be equivalent to $2,400 today. The surge was tied to a breakdown in confidence in the ability of the Euro Zone to handle its debt crisis as well as a response to the markdown in credit worthiness of US debt by Standard and Poor’s. A crash in world equity markets saw funds flying into the safety of US bonds and the alternative currency of gold. The Yen strengthened to a post WWII high against the dollar and the Swiss Franc rocketed to new life of life highs. Gold is up over 8% on the week. A cautionary note for gold is that the Relative Strength Index now stands at 86. This is dangerously high. The shorts have been blown out. Don’t be surprised if exchanges raise margin requirements to slow this vertical ascent. A big incentive to the gold trade on Wednesday was the extreme weakness seen in the French banks with Societe Generale down nearly 20% at one point during trading. Also, other traders are pointing to an inverse relationship between Bank of America and gold.

Addendum to the above: gold margins were raised 22% Wednesday night but the market impact seems negligible; just under 8K to trade a contact worth 180K. If this move doesn’t slow gold’s vertical attack, expect another more draconian margin increase by the end of the week.

Speed line is too extreme to be sustained.

A far different looking chart. Silver is more linked to general economic strength and weakness and shows a range trade. The same can be said for platinum in the chart below.

Oct Plat                                       1723.00                                            1794.00

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Coffee sold off sharply over the past five sessions based on recessionary fears. Outside market forces and influences remain negative. A frost in Brazil did little damage to the crop. Coffee exports from Mexico are 35% higher than last year at this time. Supplies form Vietnam are tight, however. Money flow is negative and the chart below looks like a negative continuation pattern.

Sugar was sold off along with other markets on recessionary fears. Fundamentals were actually a bit more positive. Center south Brazilian production is said to be coming in at less than previously expected levels. Chinese imports are lower, however. The chart below shows a

negative continuation pattern. Rallies will be sold as there’s a lack in confidence for sustained demand.

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Money flow in soybeans remains negative. The weather models appear to be favorable for soybeans over the next 10 days. Chinese imports have improved yet the pace is 5.5% below last year’s levels.

Traders are focused on Thursday’s USDA crop production and supply/demand report. Yield damage is expected from July’s excessive heat. USDA is expected to report a poor yield outlook. Previous bushels per acre were forecast at 158.7 but should come in at 155 as per this report. World ending corn stocks are at a 5 year low. Brazil lowered their production estimates. The chart below is constructive. Price rejection on Tuesday supports higher prices.

Better crops from Russia and Europe are helping to depress prices for US wheat.

Chuck Kespert from 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 SUBEQUENTLY 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