Commodities

Market sentiment was dampened amid weaker-than-expected economic data from the US and the Eurozone. Wall Street slipped with DJIA and S&P 500 losing -0.21% and -0.33% respectively. Oil prices remained firm with the prompt month contract for Brent crude surged to as high as 123.23 before settling at 122.9, up +1.02% while the equivalent WTI crude contract closed largely flat as investors were disappointed by the rises in oil inventories. Gold soared for a second consecutive day rising to a 3-month high of 1783.4 before ending the day at 1771.3, up +0.73%.

SPOT GOLD closed higher on Wednesday renewing the rally off December's low. The highrange close sets the stage for a steady to higher opening on Thursday. Stochastics and the RSI are bullish signalling that sideways to higher prices are possible nearterm. If April renews the rally off December's low, the 75% retracement level of the SeptemberDecember decline crossing is the next upside target. Closes below the reaction low crossing are needed to confirm that a shortterm top has been posted.

Gold Prices hovered just below $1760 per ounce during London's Wednesday morning trading, after a rally in Tuesday's US session saw gold gain 1.3%. Silver Prices softened slightly but held above $34 per ounce - having through that level on Tuesday following the Greek bailout announcement. Stocks and commodities edged lower this morning, while government bond prices gained. Gold Prices "[ran] into sell stops at the $1760 level," says one gold dealer here in London.

The continuous divergence between the price of West Texas Intermediate (WTI) and Brent prices has called into question whether markets should continue to consider the price of WTI a benchmark at all. The biggest problem for WTI is that the physical characteristics of the Cushing, Oklahoma delivery point for WTI has been broken and has rendered the price of WTI obsolete as a benchmark for oil and gasoline prices in the U.S. However, markets have remained efficient in the sense that they have easily shifted their attention to alternative benchmarks, as is the case with the price of Louisiana Light Sweet (LLS) crude. In the past, the price of LLS remained very close to the price of WTI. However, since the divergence between WTI and Brent started, the price of LLS has followed the later rather than the former. Thus, markets have already chosen to de-emphasize WTI as a benchmark price for oil. In addition, the price of U.S. gasoline has followed the price of LLS and Brent rather than the price of WTI.

Wednesday's trading brought with it a strong up day for the US Treasuries, with the 30-Year Bond futures surging from a key support level. Autochartist has been plotting the development of a simple Triangle chat pattern on the 240-minute platform. The move higher arrives on the heels of a reversal at the bottom of this pattern to suggest a move towards resistance may now occur.

The odds of conflict with Iran continue to rise as it appear talks that could be the last chance to stop events from spinning out of control seem to be dead on arrival. Oil prices which really looked beyond the symbolic Iranian cut of oil to the UK and France, seemed to start to focus a bit more on latest deal to save Greece and a surging stock market. Yet oil already up got another dollar spike when Bloomberg News reported that Iran’s foreign Minister basically said that talks about Iran’s nuclear program were off the table. Many had hoped that the resumption of talks between the International Atomic Energy Agency and Iran was a possible way out of this crisis. Those dreams were seemingly put to rest when a spokesman for the Iranian Foreign Ministry Ramin Mehmanparast, said that when it comes to Iran’s “right to peaceful nuclear energy there is nothing to negotiate.” So much for the olive branch, it seems the tree just fell down.

Oil prices eased after soaring to a 9-month high after Eurozone PMI missed expectations. Concern over weak economic outlook in the 17-nation region re-emerged, upstaged the newly approved bailout package to Greece and escalated Iranian tensions. The front-month contract for WTI crude oil moved within a narrow range of 105.62 and 106.41 ahead of US opening. The equivalent Brent crude contract also eased a bit.

The junior sector had a very difficult year in 2011 but has led the recent recovery (at least statistically) in the precious metals sector. Two of our favorite exchange traded funds, GDXJ and ZJG.to are up 30% and 25% respectively. That exceeds GDX (large caps) which has rebounded 15%. These are significant gains but barely put a dent in the low valuations for the sector. Ratio analysis shows us how undervalued the smaller gold stocks are yet an examination of history shows this is not out of the ordinary at this point in a bull market.