Karachi, May 18, 2012 (PPI-OT): Hangover clears for precious metals; crude still asleep
Signs of life
According to KASB Securities Limited,
• Technical indicators came to the rescue as a quick pull back was seen in precious metals aided by a sorry state of affairs on the fundamental front. The Philly Fed Index plunged into negative territory (-5.8) as opposed to consensus expectations of a rise to 10.3; fuelling the view of further monetary easing.
• Gold prices finally got back on their feet and surged by 2.3% with silver out-performing (+3.0%). However participants are skeptical that the rebound may be nothing more than a brief breather in a bearish trend.
• Poor unemployment claims also acted as a drag on investor interest as labor market outlook showed no meaningful reduction in jobless claims. Greenback bids were solid during the day (+0.14% vs. Euro).
Search for a floor continues in oil
• US crude was battered for a fifth successive session as dark clouds of economic indicators played on investor sentiments which were further worsened by the prospects of a Greek exit from the Euro zone. A session high of US$93.6/bbl was attributed to comments from US officials that a military option was available to curb the threat of Iran’s nuclear program.
• For WTI’s outlook, the first flow of inventory out of Cushing is expected over the weekend which is expected to soften the premium of Brent and narrow the differential between the two grades. Moreover, with stockpile levels at a 22-year high, a meaningful reduction should assist in the price recovery.
• Meanwhile, the forgotten story of releasing strategic reserves again seems to be doing the rounds as the US President is expected to tap the support of other G8 members at a summit commencing today.
Sympathetic words from EU; underlying message for Greeks unchanged
• The EU group doused speculation that a Greek exit was being contemplated and reiterated their firm backing to keep the nation in the union; however they were quick to point out that the Greek side must uphold its end of the deal regardless of a change in leadership. Voters are expected to go to the polls again on 17th June after the first round failed to lead to a breakthrough for a coalition govt.
• Fitch Ratings issued a credit rating downgrade of Greece to CCC from B-. The rating agency also warned that it would place all sovereign ratings on Rating Watch Negative if the risk of a Greek exit further grows visible.
Key events/data releases
• G8 Meetings: Two-day Summit kicking off in Camp David (US) today.
Technical Strategy: Buy on Weakness
Gold registered a higher high and a higher low to close well into the green while also managing to close above its critical trendline (black line) and level of US$1,552.81. The Stochastic Oscillator strengthened its buy signal having edged up above its oversold region while the RSI has generated a buy signal as well. The first support is at US$1,564.42 and second support is at US$1,554.60. The first resistance is at US$1,582.62 and the second resistance is at US$1,590.11.
Technical Strategy: Buy on Weakness
Silver registered a higher high and a higher low to close in the green. The Stochastic Oscillator has now generated a buy signal having edged up above the oversold region while the RSI too has shown improvement and generated a buy signal. This suggests that the recovery is likely to continue. The first support is at US$27.62 and second support at US$27.18. The first resistance is at US$28.49 and the second resistance is at US$29.03.
WTI Spot (Crude Oil)
Technical Strategy: Sell on Strength
WTI opened in the green however failed to hold ground to close negative while trading below its support trendline. The Stochastic Oscillator maintains its sell signal while the RSI continues to show weakness in its oversold region. It would be prudent to wait for a positive closing before going long. The first support is at US$91.88 and second support is at US$91.23. The first resistance is at US$93.19 and the second resistance is at US$93.85.