Commodities - Going For Gold
The near-term declines that we suggested a couple of weeks ago in the oil and gold markets basically played out, although the sell-off was much more short-lived with regards to gold. The precious metal slid into the high 450s before bouncing impressively, ensuring a continuation of the major uptrend.
Indeed, as inflation expectations in G7 gather pace, triggering hawkish rhetoric from ECB and Fed members alike, investors continue to seek the traditional hedge of gold. The spot market is once again testing the all-important resistance level of US$475.00 per ounce. A break higher, which is looking highly likely, would send the metal towards US$500.00 over coming months. The move certainly ties in with the view of higher US interest rates to counter the rise in core inflation.
As for front month Brent, the contract fell through support at US$61.00/b, setting up the decline to major trendline support at US$58.00/b. US government data showing a slowdown in fuel demand, and a revival in some US refinery operations, assisted in the sell-off.
That said, the small end of week bounce could well see the contract rally to what is now key resistance in the US$61.00/ region. We would expect this area to hold, presaging further downside, possibly as far as the mid-50s.
However, our generally bullish view of the commodity remains, given the strength of demand from emerging economies such as India and China, and all the ongoing geopolitical risks. Indeed, we refer once again to our favourite statistic, that less than 1.0% of the Chinese population own a motor car. The fact that this number has the potential to explode over coming years should help to underpin any long-term correction.
On a technical basis, any break back above US$61.00/b would suggest a resumption of the uptrend.
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