Commodities Sell Off A Larger Indicator Of Economic Dynamism

July 22, 2015 - 4:45pm

 by Gary Wagner

The sell off in commodities is affecting all the complexes. If it continues, we will see its effect in the form of lower inflation, which in turn may cast a shadow on a potential interest rate hike by the Federal Reserve.

Gold is off today by about $8.00, although it is well up from its lows. In fact, the entire precious metals complex is down markedly. In addition, base metal prices tumbled as well.

Agriculture did not fare any better, almost every commodity on that side off except cotton, rough rice and lean hogs. Wheat, soybeans and corn led the decline.

West Texas Crude fell close to the $49 per barrel level once more (off 3.42%) while Brent North Sea was off almost nearly two percentage points. This was on news of a rise in U.S. stocks of crude oil.

U.S. crude stocks rose 2.5 million barrels, the Energy Information Administration (EIA) said in this week’s report. That contrasted with predictions that inventories would be down 2.3 million barrels.

"The crude oil inventory rise was driven by a strong rebound in crude oil imports, which neared 8 million barrels per day," said John Kilduff, partner at Again Capital LLC in New York. The U.S. is buying cheap Saudi oil at a breakneck pace, perhaps in anticipation of a rise in OPEC prices that would be contingent on a drop in production.

A rising dollar today also helped push crude down, as it did to gold and the other metals.

U.S. equities are holding in their lower ranges today but this is not the great correction some doomsayers have been reading in their tealeaves. Rather, it is a washout due to fair-to-middling earnings in Q2.

Apple’s poor forecast really hammered the tech sector, which is in better shape than the slide today might indicate. Apple has some of its own internal problems – it relies too much on iPhone sales, for instance – but other parts of the sector are healthy and running wild with innovation and profits.

Weakness can be found wherever you look in gold.

Physical demand is slack as buyers in India and China, the world’s two largest buyers, as buyers await further price drops. We are also out of the wedding season in India and its government’s excise tax on gold imports isn’t helping.

Further, holdings in the world's biggest gold-backed exchange-traded fund, SPDR Gold Shares, keep falling. They fell for a fourth day on Tuesday by another 4.8 tons, hitting their lowest since 2008. Overall SPDR’s reserves have nearly halved from their 2012 peak.

Gold is also facing lower lows and lower highs, a more technical reading, but one that is rapidly becoming so prevalent that it is practically a fundamental condition at this point.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Gold Forecast: Proper Action

We were stopped out of long gold and reversed our postion. Long @ 1106 out @ 1092 -14.00 

Maintain short gold @ 1092 Maintain stop above 1107

Gold Market Forecast

Gold continues to trade under pressure, breaking two new lows on the day with an intraday low of 1085. To find a corresponding low historically speaking we need to go back to February 2010. At that time gold had just traded to a low of 1065 before moving higher. This was also the period that George Soros was accumulating gold. We believe that these most recent lows are signaling further downside pressure. Our current target in gold shows minor support at 1065, then at 1030, with major support in the thousand dollars. 

Trending Markets: Proper Action

We issued a sell signal in crude oil today (current 49.16)

Place protective stop @ 53.60

Trending Markets Forecast

We are waiting further clarification in the US dollar and Euro before we enter any active trades. For now we issued a sell signal in crude oil this morning as our only active trade in trending markets.

US Dollar –Lower corrective phase never saw follow through, more likley to return to bullish advance

Euro –Higher corrective phase never saw follow through, could trade lower