The precious metals complex has been trading sideways since the beginning of the second quarter of this year with gold stuck in the $870-960 range. This reflects the directionless performance in the US dollar as the two have proven closely correlated recently. This range is set to be broken and we are maintaining our bullish stance. The way the market looks now, the likely outcome is to the upside.
In general as the price has been in "balance" for a few months, the break out will be violent and the $1,000 target will be quickly reached. To trigger this upward move we are in need of a daily close above $968. And topical in the present environment, equity market weakness and an escalation in geopolitical risk in the Middle East will be supportive of the metal.
Natural gas
Despite the recent correction below $12, we still keep our bullish view that it could reach $17 soon. As we saw last week the weather is a primary factor now as we are in the midst of summer and the hurricane season. The Bertha storm last week was a false alarm but we expect above normal temperatures for the East of the US in July and August and meteorologists have forecast more storms, only increasing the probability of a hurricane on the horizon.
Wheat
The market mood seems to have swung around though since the last June 30 US Department of Agriculture report projected increased corn acreage and reduced soybean acreage. The week before last we had a neutral stance on corn as we were looking for a break of the $8.00/7.50 for direction. The break out for December corn was violent with a gap to the downside. On a purely technical view, the psychological $7 level is now attempting to slowdown the fall but more solid support is at $6.60, where we will be looking to enter a long position.
Wheat's price action has been disappointing as the market faces expectations for increased production and possible carry out estimates from the USDA crop reports. We stayed short before the USDA release. Disappointing weather and news of fronts in the coming months will play a decisive role in pricing. However, we are keen to enter a medium-term long wheat position around $7.50.
- The writer is with Saxo Bank