Gold moved slightly higher on Wednesday, rising $2, or 0.17%, but gold ETF holdings plunged nearly 600,000 troy ounces. It is plausible that the ETF liquidation actually occurred Tuesday, when gold tumbled nearly $22. Perhaps the ETFs just happened to report the physical movements a day later. Regardless, the correlation between ETF holdings and gold prices is extremely high, and the relationship certainly explains the recent correction in gold prices.
Since peaking last Monday, holdings have dropped nearly 1 million troy ounces, or 31 metric tons. With recent news flow best characterized as neutral, there is little to encourage gold investors to buy aggressively. Indeed, as such investors already hold near-record amounts of the metal, there exists enormous risk to the price of gold in the event further liquidation occurs. We would continue to avoid gold from the long side until there are signs of stabilization.
Technical outlook: Prices stalled at support marked by the bottom of a near-term falling channel established from the swing high in June after taking out support at a rising trend line set from the low in early February. Initial resistance lines up at the $1,170.00 figure, whereas continued selling would challenge $1,151.85.
Silver $17.58 +$0.11 +0.65%
Commentary: Silver significantly underperformed gold on Wednesday, falling $0.15, or 0.87%. In the event of further losses in the precious metals complex, silver will be at risk of breaking below the bottom end of a range that has contained the metal since March.
Technical outlook: Prices continue to consolidate within a descending triangle chart formation above support at $17.45. This setup is typically a continuation pattern, hinting further gains ahead. That said, it also carries a negative connotation and may hint at an emerging bearish bias. A break below support exposes at the $17.00 figure, while a rebound sees initial resistance at $18.57.
Crude Oil Falls on Bearish Inventory Data
Crude Oil (WTI) $77.12 +$0.13 +0.17%
Commentary: Crude oil fell following a bearish inventory report on Wednesday. In the coming weeks we will see whether the enormous build was the start of a trend of an aberration.
Spurred by a bearish DOE inventory report, crude oil prices finished the Wednesday session $0.51, or 0.66% lower. Immediately following the report, prices ticked as low as $75.90 but then proceeded to recover throughout the day. Considering the size of the inventory build, Wednesday's losses were relatively tame. Notably, inventories are now just shy of the 10-year highs that were registered last year, during the depths of the economic crisis. That being said, the primary culprit of the 9 million barrel petroleum build was a 1.2 million barrel per day week-over-week surge in oil imports. Traders are understandably skeptical of the sustainability of the 11+ million barrel per day crude oil import level. Though it is impossible to know for sure, much of the surge could possibly be attributed to floating storage in the Gulf of Mexico coming back onshore. Recall that last year, vast amounts of floating storage accumulated on tankers around the world as the crude oil forward curve ballooned, making the economics of storage arbitrage extremely profitable.
Technical outlook: Prices marked time today after yesterday's downswing following a test of resistance at $79.38, the June swing top, but the bearish implications of current positioning have been little changed. Continued selling targets the bottom of a rising channel established since May near the $75 figure.