Crude Modestly Higher ahead of FOMC Meeting

ONG Focus | Insights | Written by Oil N' Gold | Sun Oct 31 10 23:05 ET

Crude oil price climbed higher in Asian session on Monday as USD's decline ahead of the FOMC meeting raised appeal for commodities. Data showing strong manufacturing activities in China also boosted oil prices. Gold kept hovering around 1360. We believe either upside or downside surprise from Fed's QE should benefit positive for gold in the long-term. However, a milder than expected dose of QE may trigger selloff in the metal in the near-term.

Economic data released last Friday were mixed. US GPD grew by an annualized pace of +2% (consensus: +2.2%) in 3Q10, from +1.7% a quarter ago. University of Michigan consumer confidence was revised down -0.2 points to 67.7 in October. While the ‘economic conditions' index rose +3.6 points to 76.6, the ‘expectations index' fell -2.7 points to 61.9.Chicago PMI, however, beat market expectations and improved to 60.6 in October. We believe the set of data should not alter the Fed's decision to announce new QE measure at the meeting this week.

The dollar fell against major currencies with the exception of Japanese yen. The market forecast the size of Fed's new bond-buying program would be $1-2 trillion but it may begin by announcing $500B over several months or $100B per month. Apart from purchasing Treasury securities, the Fed may modify its language used in the accompanying statement. At the Boston Fed conference, Chairman Ben Bernanke said that 'clear communication about the longer-run objectives of monetary policy is beneficial at all times but is particularly important in a time of low inflation and uncertain economic prospects such as the present' and the FOMC will continue to 'actively review its communications strategy with the goal of providing as much clarity as possible about its outlook, policy objectives, and policy strategies'.

China's PMI expanded to 54.7 in October from 53.8 a month ago. This is the fastest growth pace in 6 months and signaled the country's economy can sustain through the government's tightening measures. This is also positive news for the oil market as, according to IEA, China has overtaken the US as the world's largest oil user.

With the exception of gasoline, speculators were bullish on oil sector in the week ended October 26. Net length for crude oil surged +24 441 to 125 271 contracts, the highest level since January 2010. QE anticipations and rise in European oil demand due to strikes in France have helped attracting capitals. Net length for heating oil added +963 to 29 605 contracts but that for gasoline fell -4 404 to 57 683 contracts. Net shorts for natural gas dropped for a second consecutive week, by -8 130, to 165 744 contracts, the lowest level in 8 weeks.

Speculators trimmed long positions in gold and silver but staying positive for PGMs. Net long for gold fell -10 666 to 239 086 contracts while that for silver slipped -2 788 to 26 743 contracts. Prices, however, were a tad higher. Net length for platinum climbed +1 181 to a record of 26 743 contracts while that for palladium gained +851 to 16 134 contracts, only slightly below a record high of 16 185 contracts made in May 2010. Recovery in the auto sector and new emission standard in the US have been buoyant for PGMs as they are mainly used as autocatalytic converters.

 

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The best ways to speculate on higher inflation

From Forbes:

...If you are skeptical of QE2, as the latest round of money creation is labeled, join the crowd. A lot of traders are already taking protective steps in anticipation of the meeting of the Federal Open Market Committee Nov. 2 and Nov. 3. They are selling off longer-term bonds and/or buying derivatives that will preserve capital in a time of rising interest rates.

Here are eight ways to protect yourself from rising interest…

Read full article…

More on inflation:

Credit Suisse: These industries will get crushed by the Fed's "money printing"...

Porter Stansberry: These horrific predictions are now coming true

Don't be fooled... Inflation is coming

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A Chinese state newspaper just guaranteed gold will go higher

From Bloomberg:

China should buy more gold to diversify its foreign exchange reserves, International Business Daily, a newspaper affiliated with the Ministry of Commerce, reported.

China should increase its gold holdings if the country aspires to "internationalize" its currency, the paper said on its website, citing Meng Qingfa, a researcher at the China Chamber of International Commerce. The 1,054 metric tons of gold reserves are inadequate, compared with the 8,133 tons held by the U.S. and 3,408 tons by Germany, he was cited as saying.

China has $2.6 trillion of foreign-exchange reserves, mostly in dollar assets, Meng said. Such holdings will put China at a disadvantage when the U.S. dollar depreciates, as is inevitable amid a worsening U.S. debt problem, he said.

China and India will continue to drive demand for gold jewelry going into the fourth quarter, Bank of China International Holdings Ltd. said in a report on Sept. 27.

India enters a peak season for weddings and the Diwali festival in October-November and Chinese people typically increase their purchases of gold before the Lunar New Year.

Gold demand in China, the world's largest producer, already gained in the first half of this year as government measures to cool the property market and falling equities spurred investment, the Shanghai Gold Exchange said July 7.

Gold climbed to a record $1,387.35 an ounce on Oct. 14 as investors sought to protect their wealth amid concerns about the global economic recovery, and is headed for a 10th consecutive annual increase.

Sales of gold products such as bars and coins by China National Gold Group Corp., owner of the country's largest deposit of the metal, jumped as much as 40 percent in the first half, Song Quanli, deputy party secretary at the company, said July 7.

Gold Output

China's gold output may rise to 340 tons this year, from 314 tons last year, solidifying the nation's position as the world's largest producer, Zhang Fengkui, section chief of the raw materials department at the Ministry of Industry and Information Technology, said on Oct. 16.

To increase physical gold supply, the central bank also said on Aug. 4 that it will "increase the number of commercial banks who are qualified to import and export gold, based on the market demand situation." The central bank also said it will support overseas investment plans by "large-scale" bullion companies by backing them financially.

Still, the State Administration of Foreign Exchange, which manages the nation's reserves, said in July that U.S. government debt has the benefits of "relatively good" safety, liquidity, low trading costs and market capacity.

Gold is unlikely to become a major holding in China's foreign reserves because of the metal's big price swings and lack of interest payments, SAFE said then.

For Related News and Information:

To contact the Bloomberg News staffs on this story: Feiwen Rong in Beijing at frong2@bloomberg.net.

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net.

More on China:

China is quietly dumping massive amounts of U.S. Treasuries

The huge source of power China has over America that no one talks about

New data shows China could be secretly funding the biggest housing bubble in history

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QE2 Means A Lower Dollar and Higher <b>Gold Price</b> - Robert Lenzner <b>...</b>

Oct. 12 2010 - 6:18 pm | 1,525 views | 0 recommendations |

Ben Bernanke has no sure fire policy solution for economic stagnation. QE2,  the $1 trillion quantitative easing expected, hoped for, prayed for, gossiped about, will only pour money into an economy that has no use for it. There is already $1.8 trillion cash on corporate balance sheets, $2 trillion cash in money market mutual funds and over $1 trillion reserves in commercial banks– a total of $4.8 trillion unused cash sitting silent. Creating no jobs, no consumer purchases.

 The upshot  will only drive down the dollar and drive up the price of gold, silver, platinum and other commodities. Thank  David Rosenberg, the best informed, clearest thinker on Wall Street (Gluskin Sheff) for that strong sure view. Anyway, you missed the first 3% ride  in commodities as the market began discounting QE2. last week.

QE2 will have a boomerang effect on the middle class. It will raise the price of wheat, sugar, coffee, poultry, beef, pork,  raising their cost of living, reducing their disposable income. Just the opposite that Bernanke intends. Horrors!

 No surprise. Students of the Fed like the reputable daily commentator Rosenberg (formerly of Merrill Lynch) have been monitoring how the  Fed chairman  has been dreadfully wrong in his prescriptions for the economy  since 2007. (see below step-by-step mistakes in policy).  Therefore, the odds are good the Fed will not be able to  find the formula out of stagnation and lower stock prices.

    This is a market completely based on a wing and a prayer;  wishful thinking that another $1 trillion or so in Quantitative Easing after Nov. 3 will make common stocks go up, create jobs, and ignite economic growth.

       You can ride stocks until the election and then sell them short, George Soros, the wiliest trader in the business, is advising privately. Sell them short, because  it is unlikely the Fed’s QE2 implementation will do anything  more than reduce the cost of borrowing money to buy a house or a car.

   Rosenberg backs Soros, calling the current rally “a complete money illusion–the Dow, S&P 500 and Nasdaq are all being priced in ever-devalued US dollars.”

 You want to rate Bernanke?

 Here goes;

 In  April, 2007  he predicted that the subprime disaster would not spread  throughout the housing market. He was devlishly wrong.

August 7,2007; The Fed chairman was concerned about getting inflation to moderate.   He should have been concerned about deflation, deleveraging and deficits . Got the downside risk to the US dead wrong.

In 2009 Bernanke predicted a sustained growth rate of 3.5-4.8% real GDP growth for 2011, and unemployment of 7.7-8.5%.

No wonder there are regional Fed chieftans who are doubtng the wisdom of QE2.  Driving down the yield on 10 year treasuries to 2% from 2.40% ain’t got no magic elixir.

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AGFLATION: Food prices are exploding higher

From The Reformed Broker:

Keep obsessing over gold, but the real explosion is happening in the agricultural commodity complex.

Food prices around the world are exploding. Farmer Brown has been discussing the Agflation theme here since the summer. It's happening...

Where Did The Corn Go? (Daily Markets):

“Shocking!” That is the term used by some grain traders just after...

Read full article...

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<b>Gold</b> Eases Below $1350 As Dollar Ticks Higher

(RTTNews) - The price of gold moved below $1,350 Tuesday morning after the U.S. dollar pared losses versus the euro and sterling.

Gold for December delivery, the most actively traded contract, was down $8.40 to $1,346.00 an ounce. Yesterday, gold settled at a fresh record high of $1,354.40 even as the U.S. dollar steadied.

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, edged down for a third day to 1,287.33 tons from 1,288.24 tons.

Meanwhile, the U.S. dollar continued to recover from its 8-month low versus the euro and was trading higher against sterling, after an U.S. official warned that excessively easy monetary policy could create big problems going forward. However, the buck was struggling around its 15-year low versus the yen and its record low versus the Swiss Franc.

Elsewhere, the price of silver was leveling-off from its 30-year high, while platinum was ticking lower in morning deals.

by RTT Staff Writer

For comments and feedback: contact editorial@rttnews.com

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Crude Oil Falls on Profit Taking, <b>Gold</b> Moves Higher Despite Dollar Rally

Commodities – Energy

Crude Oil Falls on Profit Taking

Crude Oil (WTI) - $81.61 // $0.60 // 0.73%

Commentary: Crude oil fell Monday, shedding $0.45, or 0.54% after getting as high as $83.50 early in the session. As we indicated yesterday, this week’s trade will likely be influenced by the push-and-pull of a constructive economic landscape versus profit taking considerations after a huge run. With crude now testing the top of a 12-month range, traders are opting to take profits rather than buy at these relatively high levels and hope for a breakout. The correlation between crude oil and U.S. equities has been rising in recent weeks and this trend will likely continue. A 20-day correlation coefficient of 0.79 is the strongest relationship between crude and equities in a month.

Many market watchers will be closely analyzing the Federal Open Market Committee’s latest minutes set to be released on Tuesday. Perhaps we will see indication of the Fed’s next moves, including any potential for more quantitative easing. Financial markets typically respond positively to easing and respond negatively to tightening or even lack of action (if easing is priced in).

Technical Outlook: Prices are showing a well-defined Bearish Engulfing candlestick pattern following a test of resistance at Augusts’ swing high ($82.97), hinting that a move lower is ahead. A break below initial support at $81.20 – the 23.6% Fibonacci retracement of the latest upswing – exposes the 38.2% and 50% levels at $79.21 and $77.60, respectively.

Commodities – Metals

Gold Moves Higher Despite Dollar Rally

Gold - $1349.35 // $4.70 // 0.35%

Commentary: Illustrating just how powerful the upward momentum in gold is, the metal rallied $7.31, or 0.54%, on Monday, hitting yet another record despite a rise in the U.S. Dollar. While momentum has a lot to do with the latest move in gold, we have also seen that gold has often moved higher regardless of day to day fluctuations in the Dollar or any other asset for that matter. Traders are more focused on the long-term, and gold traders see a very bleak future given all the sovereign debt issues that are plaguing governments around the world. Gold is seen as the “anti-fiat currency.”

Technical Outlook: In a similar fashion to oil, gold prices have formed a Bearish Engulfing candlestick pattern following a test of resistance at the top of a rising channel outlining price action since the beginning of the year, hinting a downward reversal is ahead. A break past initial rising trend line support – now at $1335.13 – exposes a longer term trend line set from July’s swing bottom (now at $1296.72).

Silver - $23.19 // $0.19 // 0.43%

Commentary: Silver moved slightly higher on Monday, adding $0.04, or 0.17%. Every time it looks like silver may be getting way ahead of itself and a correction seems imminent, the metal rallies some more. No one knows when the top will be; the only certainty is that there will be a significant pullback at some point. That doesn’t mean money can’t be made on this run, because this has been and may continue to be an extremely profitable move for traders. Stay long, but maintain an exit strategy for when the inevitable turn happens.

Technical Outlook: Prices have stalled below the $24.00 figure, seemingly negating a Bearish Engulfing candlestick pattern but failing to resume their climb. Negative RSI divergence hints at losses ahead. Initial support lines up at $22.50, with a break below that clearing the way for a move below the $22.00 figure to challenge $21.80.

For real time news and analysis, please visit http://www.dailyfx.com/real_time_news

To receive future articles by email, please contact Ilya at ispivak@dailyfx.com

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