Gold retreats

By Colin Twiggs
February 28th, 2013 12:30 a.m. ET (4:30 p:m AET)

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Spot gold is consolidating after retreating below $1600/ounce on the hourly chart. Breach of short-term support at $1590 would warn of a down-swing to test medium-term support at $1550 — and primary support at $1500.

On the monthly chart we can see that breach of $1500 would signal a primary down-trend. A 63-day Twiggs Momentum fall below -10% would also suggest a primary down-trend, while reversal above zero would suggest further ranging between $1500 and $1800.

Silver is also headed for a test of primary support — at $26/ounce — but 63-day Twiggs Momentum respect of -10% would continue the long-term bullish divergence, suggesting a new up-trend.

I am not yet convinced that gold is headed for a primary down-trend. We may be in a low-inflation/deflationary environment right now but how long will it take for central bank expansionary policies to overcome this? Watch out for bear traps. Respect of primary support around $1500 could present a buying opportunity.

Crude Oil

Jeremy Grantham (GMO) reminds us, in a recent BBC interview, not to underestimate the importance of crude oil. Crude represents roughly half of the cost (extraction, shipping, etc.) of other major commodities traded, but crude oil itself also represents half of the value of all commodities traded. When crude prices rise they do serious harm to the global economy.

Brent Crude retreated below support at $117/barrel, on concerns over the global economy. Expect medium-term support at $90/barrel for Nymex and $112/barrel for Brent crude (the green line) but only failure of primary support at $84 and $106 would signal a primary down-trend. Falling crude would be a bearish sign for gold: demand for gold increases when crude rises.

Sometimes one pays most for the things one gets for nothing.

~ Albert Einstein