Commodities continue to experience mixed fortunes with natural gas back in vogue amid hot weather and expectations about an active hurricane season.
Difficult financial market conditions inside the Euro zone still indicating a bumpy road ahead. Banks are lending their excess liquidity to the ECB rather than to each other, which is similar to the situation leading up to the collapse of Lehman Brothers. Ten year yield spread between German government bonds and some Southern European ones rose to levels not seen since 1997 with investors continuing to play it safe.
Economic data from the U.S. is still pointing in the right direction; however the pace of job creation is still only showing a slow improvement. Stock and commodity markets reacted negatively to this on Friday after the monthly U.S. employment report was released.
Commodities are still struggling to regain some traction after the heavy losses suffered during the month of May. Natural gas is the only one standing out having rallied more than 10 percent during the past week in the process rising to a three months high. The latest inventory report showed stockpiles rising less than expected which triggered a break above the 200 day moving average at 4.54.
Hot weather in North East and the midcontinent of the U.S. has boosted demand for gas-powered electricity to run air conditioners. In addition news from the government that gas producers seeking to drill in Gulf of Mexico must resubmit plans to comply with new safety and environment requirements in the wake of the BP oil spill disaster also supported prices.
The 2010 Atlantic hurricane season has now begun with NOAA’s Climate Prediction Center, expecting an “active to extremely active” season, namely 8 to 14 hurricanes, of which 3 to 7 could be majors. Amid this background natural gas prices should stay supported over the summer. The speculative short position on NYMEX has begun to decrease as short sellers will fear price spikes similar to those recorded during the 2005 season when Rita and Katrina caused mass destruction and disruption to the natural gas industry.
Technically support can now be found at 4.50 with the move above the 200 day moving average on the near month at 4.54 signaling upside momentum initially towards 5.05.
Energy markets got a boost ahead of Friday’s jobless data after a report showed that U.S. gasoline inventories declined as fuel demand increased to 20 million barrels a day, the highest level since January 2009. The economic outlook for the U.S. continues to improve and this has led investors to re enter the market after having had to reduce their exposure during May.
Technically resistance can be found at 75.80 being 38.2% retracement of the recent sell off followed by 200 day moving average at 76.78 before 50% retracement at 78.50. A move sub 70 dollars will signal a rejection of the positive sentiment with another attempt towards the mid sixties. The dollar still plays an important role in determining the price of crude and the move below EURO 1.21 on Friday weakened prices somewhat indicating a market left range bound for now.
Gold ran into profit taking this week but still managed to hold onto support at 1197.5 which is 50% retracement of the recent rally. A close below would signal a deeper correction towards 1166 followed by long term support at 1137. Investment flows into Gold ETFs continues unabated reaching a new record high of 64.5 million ounces. This underlines the ongoing appetite for gold but also the increased risk of a deeper correction considering the failure to breach 1250 during this most recent rally.
As long as risk aversion stemming from the European debt crisis persists gold should continue to find support. For now though patience seems to be in order.
Other commodities in brief:
The price of rough rice is down more than 10 percent over the past couple of weeks continuing the sell off that has been ongoing since December last year. This week it fell back to August 2007 levels trading below 11 cwt on the CBOT. The U.S. crop season has kicked off strongly combined with ample world supplies and lackluster demand. Support at 10.50 with resistance at 11.42.
Near month corn broke down through recent support heading for the second weekly decline as a report showed accelerated planting and improving crop conditions. A high percentage of already planted corn was in a good or excellent condition. Forecast for hot weather next week should keep prices supported but the outlook continues to look negative with the strong dollar making exports uncompetitive. FAO of the UN expects 2010 world corn production at 835 million tonnes, up from 815 million in 2009. Support now the September low at 333.75 on July with resistance at 354.
Cocoa in London trades near a 33 year high after having rallied 20 percent since the middle of May. Heavy rain in the Ivory Coast, which accounts for 40 percent of the world’s supplies, have led to tight cocoa supply with buyers struggling to cover their requirements.
HG copper having failed to penetrate the 200 day moving average resistance at 316 broke through 290 support on Friday before the February low at 285 offered support. The metal is more than any commodity prone to moves in the currency markets. A worry that China will continue to tighten lending in order to restrain its economy is also not helping sentiment.
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