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Weekly Commodity Update

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Gold and Crude waiting for their moment of inspiration

Fri, Sep 18 2009, 13:42 GMT
by Saxo Bank Strategy Team

Saxo Bank

The dollar (1% lower) and the stock markets (S&P 2.5% higher) continued their slow grinding move in opposite directions this week thereby continuing to lend support to commodity prices. The Gold rally headed into its fifth week albeit at a slower pace as the all time high from 2008 at USD 1,032.70 is looming large. On the previous two occasions that we reached and traded above USD 1,000 a major correction followed after a few days.

So far the move has primarily been driven by outside sentiment helped by the weaker dollar. It is therefore safe to say that we will see a major move pretty soon as all the new longs above USD 970 will be looking for a continuation of the rally and the longer it take will begin to worry about setbacks.

In our Q4 outlook for 2009 we have had to hedge our forecast as the current levels are incredible important. A sustained move above USD 1,032.70 on spot would indicate that a new USD 950 to 1,300 range could be in the making over the coming year while a failure and subsequent move back below USD 970 could trigger long liquidation back towards USD 900.

Technically stay long above USD 990 but be careful on a break below USD 970. We would expect the USD 1,032.70 resistance to be firm and would be looking to take profit ahead of this number and then only re-enter on a sustained break above.

The IMF met Friday to discuss its planned sale of 403 tons of gold to finance aid to poor countries. The U.S. Congress have given the go ahead and an agreement will not come as a major surprise to the market.

Some have used inflation fear as a factor behind the recent rally, however this do not hold up looking at the predicted US inflation in five years time as it has shown a decrease over the last month from 3.31% to 2.92%. In conclusion continue to follow the dollar closely as it is the most important market mover as illustrated above.

Crude Oil continues to tread water with most market participant happy to play the current range between USD 68 and 75.00. This past week offered no new clues as to the next move as the black gold just like the yellow variety continued to track movements of the dollar as illustrated by the last five days movement of the two below.

The supply overhang continue to be a worry near term with US supplies of Crude being 14% larger than last year and the distillate stockpiles approaching a 27 year high.

As mentioned earlier we continue to see range trading being the favoured approach with resistance on October Crude at USD 73.15 followed by USD 75.00. Meanwhile support can be found at USD 69.40 followed by USD 68.00.
The October futures contract expires next week and November will become front month on Tuesday.

The international freight market receives much attention as it is a good global indicator of trade and economic prosperity. Unfortunately this sector is often only described through the ups and downs of the Baltic Dry index.
This index continues to catch a lot attention due to the extreme price movements seen over the last year having collapsed by 94% only to recover strongly earlier this year and now falling again.

This is our new weekly comment about this segment: In general the freight market continues to look depressed, however with significant sparks of green showing up in the clean east tanker market.

In dry bulk the trend setting Capesize vessels carrying mostly iron ore to China see spot rate decreases of more than 36 per cent over the last 4 weeks whereas the smaller vessels seem to hold the ground for the moment.

In the tanker market rates for the big crude carrying VLCC’s keep being depressed with owners barely breaking even on the going spot rates.

However in the east clean tanker market a significant squeeze on vessel availability due to increasing clean storage has firmed the market up very significantly with spot rate increases of up 20 per cent over last week only. Whether this positive trend will spread to the rest of the tanker market and proves sustainable longer term remains to be seen.

Published on  Fri, Sep 18 2009, 13:48 GMT