Crude Oil market could show some fireworks this week

As trading takes place in the Asian session, the US equity futures market are solidly higher as risk appetite returns on news coming out of Italy that a proposal to cut some 30 billion euros worth of debt is in the works. While the commodity futures markets are not particularly excited about this, the stock world surely seems to be taking it as a harbinger that something is going to come out of this Friday's meeting in Brussels which has the potential to provide a healthier environment for the risk trades.

One market that is certainly reacting higher is the Crude oil market which is solidly above the $100 barrel level (WTI) and is threatening its former recent top near the $103 level. One of two things now happens - it either fails at this level sparking a round of long liquidation with talk of a double top emerging or if the risk appetite is strong enough, it takes out $103 in convincing fashion and kicks another leg higher on the price charts.

If it is the latter, here comes the fallout to the consumer from this liquification game being played by the monetary officials and political leaders. Rising energy prices cannot be separated out from a general round of risk trade money flows. If the bureaucrats and money masters want to stave off the deflationary implications of a meltdown in the sovereign debt markets, then they MUST BE FORCED into accepting surging energy prices which will certainly have a negative impact as far as growth goes on the overall global economy.

We are looking at the CATCH 22 scenario once again.

If traders suspect on the other hand, that nothing is going to come out of this Friday's summit, then crude oil will move lower reflecting the disappointment of the market that the punch bowl is not going to be spiked any further.

Trader Dan on King World News Weekly Metals Wrap

Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.

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Registration of Shares

Dear Folks:

Please refer all inquiries in this matter to Jim Sinclair as this is not my area of expertise. I am a commodities guy and not an equity guy.

Thanks,
Trader Dan

A First Step in the Right Direction

Fox Business is reporting that the former head of MF Global has been subpoenaed to testify in front of a Congressional House Panel

Here is their lead in to the article:

Jon Corzine, the former head of bankrupt commodities brokerage firm MF Global, has been subpoenaed to testify about his role in the collapse before a congressional committee.
Corzine hasn’t been heard from publicly since MF Global imploded in October, the result of bad bets on European sovereign debt, a risky gamble reportedly pushed by Corzine himself.

Read more: http://www.foxbusiness.com/politics/2011/12/02/corzine-subpoenaed-to-appear-before-house-panel/#ixzz1fOoGfStV

Let's see where this leads. I hope it is just the tip of the iceberg as far as what he and his former firm reap.

Bank of Korea purchases Gold

Dow Jones is reporting that the Bank of Korea has announced that it has increased the amount of gold in its reserves for the second time this year.

The report states that they purchased 15 tons in several batches last month. The last purchase was back in June for a total of 25 tons.

It now has 54.4 tons in reserve. Even with the purchases this year, it still has only 1% of its total foreign exchange reserves in gold. The former amount was a mere 0.7%.

We do not know the actual price at which these purchases were made but there is no doubt in my mind that they occured on forays down into the zone near the $1600 level. This level has seen strong buying by assorted Central Banks for some time now and I see nothing that would cause this to change anytime soon.

The fact is that many of the banks that have been accumulating gold are doing so to both diversify their reserves and to provide confidence to investors world wide .

As traders/investors this is valuable information for us as it points to very strong downside support in gold with sizeable accumulation occuring among a group of market participants who are not buying the metal only to try to flip it for some sort of short term gain. They are buying because they see value in the metal at these prices.

Monthly Gold Chart - Closing Price Only

I still marvel when looking at these charts at those who continue to denigrate gold and particularly those who deny it is a safe haven.

While we all know that the official government CPI numbers are a fantasy, it is still rather interesting to see where gold has run into overhead resistance based on this inflation adjusted chart.

Crude Oil prices - Collateral Damage

Once again the WTI crude oil market is testing the psychological $100 level. After mounting a huge rally over the last two months that took price from down near $75/bbl to over $100/bbl, crude prices retreated as fears surfaced concerning the ongoing crisis in Europe.  While tensions with Iran have kept prices from tanking, it is a given that crude oil was not exempt from risk aversion trades and fears of an overall global financial slowdown.

However, as traders have begun anticipating action by the Central Banks to deal with this crisis, crude has floated back up again. Today's spiking of the punch bowl by the Fed and its cohorts at 5 other Central Banks, has driven crude back above the $100 level.

I find this quite fascinating because this is exactly the same thing that forced the Fed to eventually try to backpedal on its QE efforts earlier this year and pull the plug back in June when QE2 was due to expire. Bernanke and company realized that the cost of providing this liquidity binge was a weaker Dollar and surging energy prices. Only when the pain at the gas pump became large enough to elicit howls of complaints from voting constituents did we see Congressional leaders start complaining about the Fed. Prior to rising energy prices and soaring food prices, most of these leaders were silent enough especially as the same liquidity bursts kicked the price of US equities higher. After all there is nothing that most politicians love better than to see the DOW going up while they are in office.

What we are going to be carefully monitoring is how crude oil prices move in the days and weeks ahead. Any moves by the Central Banks to keep the liquidity crisis from becoming a full-blown solvency crisis are going to drive crude oil, along with the rest of the commodity complex, higher. What happens if crude then moves back above $115 barrel and looks like it is going to mount an upside breakout? Will rising energy prices undercut any so-called "growth" in those economies being targetted by these Central Banks?

Once again, we are back to what was said way back when the Fed first started up its QE program - they cannot selectively move equity prices higher and improve the economy WITHOUT also getting a sharp rise in commodities, including food and energy. Hedge fund money flows are not selective - they buy everything in sight and there is nothing the Fed or any other Central Bank can do to prevent this. One way or the other, there is going to be fallout - either failing banks, falling prices, rising unemployment or surging prices, particularly energy and food once again.

Silver and Gold charts