Category: Gold & Commodities

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BHP: China Iron Ore Demand 'Flattening Out' – WSJ.com

STEPHEN BELL: China’s demand for iron ore is ‘flattening out’, a senior executive at BHP Billiton Ltd. said Tuesday.

Demand growth for the commodity used to make steel will drop “to single digits if it is not already there,” Ian Ashby told a press conference in Perth.

via BHP: China Iron Ore Demand 'Flattening Out' – WSJ.com.

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Nouriel Roubini's Global EconoMonitor » Scary Oil

Nouriel Roubini: The last three global recessions (prior to 2008) were each caused by a geopolitical shock in the Middle East that led to a sharp spike in oil prices. The 1973 Yom Kippur War between Israel and the Arab states led to global stagflation (recession and inflation) in 1974-1975. The Iranian revolution in 1979 led to global stagflation in 1980-1982. And Iraq’s invasion of Kuwait in the summer of 1990 led to the global recession of 1990-1991.

Even the recent global recession, though triggered by a financial crisis, was exacerbated by spiking oil prices in 2008. With the barrel price reaching $145 in July of that year, oil-importing advanced economies and emerging markets alike faced a recessionary tipping point.

……..Oil is already well above $100/barrel, despite weak economic growth in advanced countries and many emerging markets. The fear premium might push prices significantly higher, even if no military conflict ultimately takes place, and could trigger a global recession if one does.

via EconoMonitor : Nouriel Roubini’s Global EconoMonitor » Scary Oil.

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Crude Oil & Commodities

Brent crude broke through resistance at $125/barrel on the Monthly chart, despite the strengthening dollar. Target for the advance is the 2008 high of $145.

ICE Brent Afternoon Markers

* Target calculation: 125 + (125 – 100 ) = 150

The broader CRB Commodities Index lags far behind. Breakout above 325 would signal an advance to 370*. But 63-day Twiggs Momentum remains below zero, indicating a primary down-trend, and reversal below the rising trendline would strengthen the signal. Failure of primary support at 290 would confirm.

CRB Commodities Index

* Target calculation: 330 + ( 330 – 290 ) = 370

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Gold falls as the Dollar rises

The US Dollar Index broke resistance at 80 on the Weekly chart, signaling an advance to 82. The Index is already in a primary up-trend, as indicated by 63-day Twiggs Momentum above zero. Breakout above 82 would offer a target of 86*.

US Dollar Index

* Target calculation: 82 + ( 82 – 78 ) = 86

Spot Gold followed through below last week’s low, indicating a correction to test primary support at 1500. Respect of the long-term rising trendline would indicate the primary up-trend is intact, but reversal of 63-day Twiggs Momentum below zero for a second time warns of a down-trend. Target for a down-trend would be 1200 to 1400*.

Spot Gold

* Target calculation: 1600 – ( 1800 – 1600 ) = 1400

The Hourly chart shows short-term support at 1635 and resistance at 1650. Failure of support would test 1600, while upward breakout from the trend channel would signal retracement to test the new resistance level.
Spot Gold

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Japan, India, South Korea

Japan’s Nikkei 225 Index is testing resistance at 10,000. Rising 13-week Twiggs Money Flow indicates strong buying pressure. Expect a short retracement followed by an advance to 11,000*.

Nikkei 225 Index

* Target calculation: 10000 + ( 10000 – 9000 ) = 11000

India’s Sensex Index is testing resistance at 18,000 after respecting support at 17,000. Rising 13-week Twiggs Money Flow indicates strong buying pressure. Upward breakout would signal an advance to 20,000*.

BSE Sensex Index

* Target calculation: 18500 + ( 18500 – 17000 ) = 20000

South Korea’s Seoul Composite Index is similarly testing resistance, at 2050. Breakout would signal an advance to 2200. Respect of the zero line by 13-week Twiggs Money Flow indicates long-term buying pressure, suggesting out-performance.

Seoul Composite Index

* Target calculation: 2050 + ( 2050 – 1950 ) = 2150

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Aussie Dollar, Canadian Loonie and commodities

The CRB Commodities Index retreated from resistance at 325. Failure of medium-term support at 310 would signal a test of primary support at 295. Respect of the zero line (from below) by 63-day Twiggs Momentum indicates continuation of the primary down-trend.

CRB Commodities Index

Lower commodity prices weakened the Aussie Dollar, with a fall below $1.06 warning of a correction to the long-term (green) rising trendline. 63-Day Twiggs Momentum remains strong, however, and recovery above $1.08 would confirm a primary up-trend.

Aussie Dollar

Canada’s Loonie was helped by rising crude prices and recovery above $1.01 would confirm the primary advance to $1.06*.

Canadian Loonie

* Target calculation: 1.01 + ( 1.01 – 0.96 ) = 1.06

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Gold weakens

Spot Gold broke medium-term support at $1700 to signal another correction, with an initial target of $1600. Breach of this level and the rising trendline would warn that the long-term up-trend is slowing. Reversal of 63-day Twiggs Momentum below zero would also suggest a primary down-trend.

Spot Gold

Introduction of repos or short-term deposits by the Fed, to offset the effects of long-term bond purchases, would dampen inflation expectations and reduce the allure of gold for investors. It would also strengthen demand for the dollar.

Breakout of the Dollar Index above 80.00 would signal an advance to 82.00 and confirm the primary up-trend. The long-term target remains at 85.00*.

US Dollar Index

* Target calculation: 80 + ( 80 – 75 ) = 85

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Brent crude headed for $145

The long-term, monthly chart shows Brent crude testing resistance at $125/barrel. Breakout would signal an advance to the 2008 high of $145. With 63-day Twiggs Money Flow (above zero) flagging a primary up-trend, respect of resistance is unlikely but would indicate another test of the rising green trendline, above $110.

ICE Brent Crude Afternoon Markers

* Target calculation: 125 + ( 125 – 100 ) = 150

I warned in May last year that every spike in crude oil prices over the last 40 years has been followed by a recession. Reading an article today by James Hamilton, he maintains that:

“There is a good deal of statistical evidence… that an oil price increase that does no more than reverse an earlier decline has a much more limited effect on the economy than if the price of oil surges to a new all-time high.”

I can find no evidence to support this, especially when two spikes below the 1980 high of $40/barrel — in 1990 and 2000 — both resulted in recessions:

Crude Oil And Recessions

US Gasoline and Fuel Oil Expenditure (as a percentage of Total Personal Consumption) gives an even clearer picture of the relationship between crude oil prices and recessions.

US Gas and Fuel Oil Expenditure/Total Personal Consumption

Every spike in Gasoline and Fuel Oil Expenditure over the last 40 years has been followed by a recession — even the twin spikes in 1980 and 1981. One possible exception is the 2002-2006 rise which was only followed by recession in late 2007. This was the era of the “Greenspan bubble” when interest rates were held at low levels for an inordinate length of time, fueling the global financial crisis in 2007/2008. I guess most of us would have settled for a milder recession in 2005.

The weight of evidence favors another recession following the latest oil price spike, though the Fed should have sufficient ammunition to postpone this until after the election.

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Gold falls as Fed gives no signs of new stimulus | Marketscope | Investing | Financial Post

The dollar rebounded after Fed Chairman Ben S. Bernanke, in congressional testimony, gave no signal that the central bank is considering additional measures to spur the economy. He said the inflation outlook is “subdued.” The greenback gained as much as 0.5 percent against a basket of competing currencies.

via Gold falls as Fed gives no signs of new stimulus | Marketscope | Investing | Financial Post.

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Commodities find resistance

Copper broke resistance at $8600/tonne; follow-through would signal continuation of the primary up-trend and point towards economic recovery. 63-Day Twiggs Momentum holding above zero strengthens the signal.

Copper Grade A

* Target calculation: 8000 + ( 8000 – 7200 ) = 8800

Brent Crude found resistance at $126/barrel — again while the dollar tests support. Breakout would offer a long-term target of $150*. Reversal below $115 is unlikely, but would warn of trend weakness.

ICE Brent Crude Afternoon Markers

* Target calculation: 125 + ( 125 – 100 ) = 150

The broader CRB Commodities Index is testing resistance at 325. Breakout would signal a primary advance to $350*, while recovery of  63-Day Twiggs Momentum above zero would strengthen the signal.

CRB Commodities Index

* Target calculation: 325 + ( 325 – 300 ) = 350

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