Commodity Update: Which Way Will Gold Go?

April Crude oil has finished higher the last 3 sessions and 4 out of the last 5 trading days. With prices settling above its 8 day MA the last 2 days I think we are poised to move higher short term. I’ve advised clients to start scaling back into bullish trade; long futures and selling out of the money calls 1:1. My initial objective is a trade north of $94/barrel. Higher trade was rejected in RBOB with prices closing 11.5 cents off their highs yesterday. I have no outright bearish trades on with clients but we are short (1) RBOB vs. long (1) heating oil with some clients. $3.10 will need to be penetrated to see more selling emerge in my opinion…that level is the current 50 day MA in April futures. Heating oil prices remained contained as the 8 day MA has capped upside the last 4 days. A trade above $2.9825 should lead to further buying. Natural gas was the chart of the day. Prices have closed higher the last 3 sessions but I see little upside from here. I anticipate that a 20-30 cent correction is eminent.

Stock Indices: A fresh high was established in the S&P yesterday with futures approaching 1560 having put on nearly 80 points in the last 2 weeks. The train has long left the station but my question is are we going to run off the tracks? I am not comfortable with clients long but refrain from any further futures bearish trades. Those traders willing to buck the trend should be in options until the market exhibits signs of an interim top. The Dow continues to post record highs gaining the last 7 consecutive sessions. My concern is that mangers chasing yield could take unnecessary risk as the benchmarks they use have had such phenomenal performance. I continue to think a correction is long overdue but perhaps better advice is to move to the sidelines rather than to gain bearish exposure, unless it's viewed as a hedge.

Metals: We are going on 3 weeks of consolidation in the gold market as prices have largely been contained. The longer the market takes to make a decision on direction, the larger the breakout should be. The multi-million-dollar question is, of course, in what direction? I have advised speculators to gain bullish exposure thinking we see prices make their way back to $1650 in the coming weeks. That would amount to an appreciation of 4.4%. Factor in the leverage which of course is a double edged sword, and I think bullish trade makes sense. At a close below $1550, bullish trades should be closed at a loss in my opinion. An inside day in silver yesterday, with futures ending just under $29/ounce. As long as May futures maintain $28.50/ounce on a closing basis I remain constructive and would live in bullish trade. When prices get moving north, I think the first stop will be $30.40 based on the current 50 day MA and also where the down sloping trend line comes in.

Softs: Cocoa gained for the last 3 sessions and ended yesterday above the 20 day MA. This is a development that had not happened in 5 weeks. I like bullish trade, and would try to capitalize on a move back to 2300 in May. Sugar has traded higher the last 6 days but not a whole lot of ground has been covered. I would like to see more now that prices have broken above the down-sloping trend line. Traders with a large bullish trade may want to lighten up in order not to follow markets down on a setback. At this point I still cannot rule out a trade back near 20 cents in May so be sure to manage the trade. Cotton has closed lower 2 out of the last 3 sessions, but the 9 day MA held yesterday. If May closes under 86 cents over the next few days, I would start to think Friday was an interim top. Stay tuned. I was dead wrong on OJ as I expected to see prices retrace before trading higher. In the last 2 days prices have surged almost 10% and I have been absent with clients. It is safe to say I missed this opportunity. In the last 4 days coffee was able to grind higher as prices are back above their 20 day MA. I am cautiously optimistic and have light bullish exposure with some clients targeting $1.48 in May.

Treasuries: Over the last 6 trading days 30-yr bonds have erased two months of gains. This is a perfect example of the taking the escalator higher and the elevator lower. The easy money has been made on bearish trade in my opinion, so trail stops on open trade. I will say that if the stock markets continue to trade higher than lower trade should happen in this complex. I just would not open fresh positions at this juncture. 10-yr notes have given back nearly 2 points in just over the last week as prices are making their way back to the February lows. On higher stock trade expect those levels to be challenged. As with bonds, I feel the easy money has been made on bearish trade.

Livestock: All attempts at $1.27 in April live cattle in recent sessions have been rejected as we finally may be finding our value zone. A close back above the 9 and 20 day MAs which come in around $1.29 should confirm an interim low. May feeder cattle are finding mild support just above $1.43. Stay tuned. Aggressive traders could probe bullish trade with tight stops in my opinion. Lean hogs lost ground for the first time in 4 sessions, but the fact that the 9 day MA supported gave me some solace. Bullish trade needs to see a trade above the 20 day MA for confirmation. I still am targeting a trade in April back near 84 cents.

Grains: In 3 short sessions corn has gained 20 cents to complete a 50% Fibonacci retracement. I see support at $7.03 in May with the next upside resistance at $7.19. Trade accordingly. Soybean futures closed slightly higher yesterday, but we were unable to make new highs, closing just under last Friday’s highs. I see support in May at $14.65 with resistance at $14.90. Any bullish news on the supply side or rumors of weather issues would likely lead to a $15/bushel trade. Though there is a solid fundamental reason to be bullish soybeans, to my mind, when weighing the risk-to-reward dynamic of current prices I still prefer wheat. Wheat was in the green for the third consecutive day yesterday, and as we get further away from last week’s lows it may become a reality that last week was our interim low. I need to see a settlement above the 9 day MA for a preliminary sign of exactly that; in May at $7.03.

Currencies: Inside day in the dollar yesterday, as we are starting to see more red on the daily candlestick chart with a negative close 3 out of the last 6 sessions. The problem has been that on positive days there have been bigger moves. I am operating under the assumption we'll see a correction very soon; My first objective is 81.50 in March. The European currencies should bounce on a dollar correction but I really do not see an entry point I like at current levels. Remain patient. While all commodity currencies should enjoy a rebound if commodities trade north from here, the only viable play I see is the loonie. I recently have advised bullish trade in this cross thinking we trade back near .9900 in March. After breaking support last week the yen continues to leak south…stand aside though a par trade is not out of the question.

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