Gold destined for $US850/oz support this week

Gold is expected to fall back to a significant support level of $US850/0z in the next few days as the Federal Reserve considers ending its recent cuts. Gold has seldom been so cheap judging by an important historical gold value - the gold oil ratio. The ratio has fallen to just 7.5, suggesting the precious metal is oversold, though it has some downside yet according to my analysis, suggesting my target of $US850/oz remains good. I think we are looking for a significant rally in gold from that point.

-----------------------------------------------
Andrew Sheldon www.sheldonthinks.com

Gold, copper outlook

As expected gold is off, going back to $US850/oz support I suggest, at which point ity should go higher. Copper will stay flat I believe, supported by a weak $US, but I dont see it breaking $4-4.14/lb area.
----------------------------------------------
Andrew Sheldon www.sheldonthinks.com

The gold-oil ratio still high

Looking at the Gold-Oil ratio you might wonder if we are close to the stop. Far from it. The gold-oil ratio has not moved much over the last 6 months. This is because the oil and gold price have been moving up together.
Looking back in time, in fact, the fall of the gold-oil ratio occurs mostly because the rise in 'cost of living' inflation raises interest rates to an extent where economic activity is curtailed. Of course that hurts oil, and not gold since there is comparatively less industrial demand for gold whilst paper money is being debased. I suspect gold & oil prices will continue to rise until oil prices start crimping economic activity, then I suspect the oil prices & gold-oil ratio will fall, but gold prices will remain strong.

-----------------------------------------------
Andrew Sheldon www.sheldonthinks.com

Metal prices rally on rate speculation

The price of copper in New York and London rallied overnight as speculation of further aggressive US rate cuts favoured commodities as a good hedge against inflation and USD weakness. At least that is the rhetoric. The reality is that at some point economic activity will be undermined by rising inflation. Only gold, silver and food commodities can be expected to buck the downtrend in commodities because they are least exposed to weakness in industrial demand. LME copper futures for 3mths delivery settled at $US8,730 per tonne, up US$190 from Tuesday's close. On the COMEX exchange copper for May delivery ended up 10.95 cents (2.8%) at $US4.00/lb.
Despite a 2.8% rise in copper, the metal still failed to close above $4.00/lb. I think that is a telling sign that industrial metals will fall, though they might consolidate at these high levels as the USD falls. But gold and silver can be expected to perform well.

Other base metals followed copper with three-months aluminium rising by $US112 to $US3,100 and nickel up $US475 to $US29,350.Lead rose $US63 to $US2,958 and tin was at $US20,650/20,700 versus $US20,400/20,450. Zinc rose $US22 to $2,372. NYMEX May crude closed at a record $US110.87, a gain of $US2.37 (2.18%), after trading betweeen $US107.95 to $US112.21. This is the highest level since NYMEX launched crude oil trading in 1983. The previous record was $US110.33 set on March 13 while the prior intraday high was $US111.80 hit on March 17.

Gold prices rallied 2% higher, reaching a high of $932.60 an ounce. Trading volumes are low in anticipation of a central bank and G7 meetings later in the week, which could offer guidance as to future policy on currencies and bullion sales. The IMF has announced plans to sell some of its gold reserves, but this would have little impact on prices since its likely to proceed in a gradual manner. The IMF is the world's third-largest gold holder after the USA and Germany, with 3,217.3 tonnes in reserves. It plans to sell 403.3 tonnes and use the proceeds to invest in government and corporate bonds, and possibly equities. Its possible that these events will bring gold back to the $850/oz support for gold that I have discussed already.
----------------------------------------------
Andrew Sheldon www.sheldonthinks.com

Gold - having an unconvincing rally

I remain convinced that gold is going to fall back to the $850/oz support. Recent levels have been weak ones, and I dont think a basis for a new rally. The gold price would have to rally above $US950/oz before I would concede. Regardless it is apparent that gold is revising its upward trend, with 3 plausible new trends in-play. I have indicated my preference for the more gradual trend line which sees gold falling back to $850/oz.

--------------------------------------------
Andrew Sheldon www.sheldonthinks.com

Silver consolidating $16.25-18.50/oz

I am expecting silver to consolidate within the $16.25-18.50/oz trading range for the near term. This will create some very good buying support off $16.25. Support is needed after the big fall in silver from $21.25/oz during March. The justification for the weakness is likely to be concerns over weaker economic outlook, which I suspect will drive all commodities lower.

----------------------------------------------
Andrew Sheldon www.sheldonthinks.com

Copper price outlook - falling to $3.00-3.30/lb

The price of copper is looking peakish at current levels. That is evident enough based on copper prices and the rise in copper stockpiles. LME stockpiles rose for the first time several months. The copper price is currently $3.97/lb, slightly down on its recent high of $4.00/lb, an important technical resistance. This is the 6^th time copper prices have reached such levels before being sold off. Its important to recognise that this volatility is being driven by copper supply shortages (due to strikes & project bottlenecking) and USD movements. These factors are responsible for the volatile technical trading between the $3.00 to $4.00/lb price levels. I dare say this will be the last time that copper prices fall. I would suggest the next rally in 2^nd half of 2008 will see copper break the $4.00 resistance.

In coming weeks there will likely be more rallies tied to USD weakness, but the technicals are likely to see copper fall back on softer demand issues. The net long, or bullish positions held by non-commercial investors in the US copper futures market rose 27% to 9,581 lots in the week to April 1, compared with 7,555 contracts a week earlier. I suspect they will be unloaded this week. The price of copper is up more than 30% this year.

There are traders suggesting that strong demand from world No. 1 consumer China will outweigh any slackening in consumption caused by a recession in the USA, but this market talk neglects the significant part US consumption plays in Chinese demand. It will take time for US sluggishness to feed through to Chinese demand.

LME inventories rose 1,000 tonnes to 116,150 tonnes - their first weekly rise since mid-February, though stocks still remain tight at just 2 days of global consumption. Citigroup regards copper as the most positive of the base metals. It has lifted its 2008 price forecast by 14.7% to $3.556/lb ($7,840/tonne) and $3.50/lb for 2009 ($7,716/t). Citigroup said prices in 2007 were supported by 800,000 tonnes of production losses compared to expectations. As a result of these supply shortages, there is likely to be a market balance in 2008. In the long run there is every chance that we will see $10,000/tonne copper, but it will not be until emerging market demand recovers.

---------------------------------------------
Andrew Sheldon www.sheldonthinks.com

Gold going to $850/oz

We are quickly gathering evidence that gold is going to $850/oz support. Apart from the fact that was an import resistance back in 1981 adds to the likelihood that it will be an important support today. More current evidence is the fact that we are seeing gold pause between $900-915/oz. A break above $US935/oz would give evidence to the contrary, supporting a move higher by gold. That would need to be a convincing move to buy at that point.

Markets often rally back to a supporting trendline, only to disappoint, and I think gold will do it on this occasion, so I am inclined to see $850/oz a more realistic outlook before returning to $1000/oz, and beyond.

---------------------------------------------
Andrew Sheldon www.sheldonthinks.com

Gold in downtrend to $850/oz level

Overnight gold fell to a support at $880/oz. This is a significant support because it broke an important trendline, having tested it several weeks ago. Based on this news, its likely that gold will fall at least to $US850/oz support level. I believe it will find support at this level. Why? Well for starters $850 was the resistance level back in 1981 when gold last peaked, so it seems probable that gold will find support their.

I dont see much compelling evidence for a fall to $680-690/oz. Inflation is picking up around the world, despite not having reached a critical point. More importantly oil is getting to levels where it has historically caused a slowdown in the global economy. I will address this issue more in Market Commentary blog.

------------------------------------------
Andrew Sheldon www.sheldonthinks.com