By Sumit Roy
Commodities fell broadly this week after the Fed reined in its stimulus and amid general concerns about emerging markets. Gold and silver weren't immune from the selling, but WTI and corn managed to eke out gains. Stocks, as measured by the S&P 500, fell by less than half a percent, bringing their year-to-date loss up to 3.4 percent.
Despite uneven economic data, the Federal Reserve announced that it would trim its monthly bond-buying program by another $10 billion to $65 billion, as expected. According to the Fed, while the labor market was mixed, it showed further improvement in recent months. Economists said the bar for the Fed to stop its steady tapering was high, and that economic data would need to deteriorate notably before the central bank changed course.
Meanwhile, a strong reading on fourth-quarter GDP in the U.S. on Thursday raised hopes that economic growth was strong enough to withstand reduced stimulus from the Fed. The Bureau of Economic Analysis reported that gross domestic product in the United States grew by 3.2 percent annualized in the fourth quarter, matching expectations. That was down a bit from the third quarter's 4.1 percent growth rate, but a robust rate nonetheless.
However, other data of the week weren't as strong. The Commerce Department reported that new home sales in the U.S. fell by 7 percent to 414K in December, well below the 455K that was expected. At the same time, it said durable goods orders in the U.S. fell by 4.3 percent in December, well below the 1.8 percent increase that was expected. Even excluding autos, sales fell by 1.6 percent, worse than the 0.5 percent gain that was anticipated.
Finally, housing news was mixed. The National Association of Realtors said pending home sales fell by 8.7 percent in December, well below expectations. On the other hand, the S&P/Case-Shiller home price index rose by 0.88 percent in November, close to expectations. On a year-over-year basis, U.S. home prices were up by 13.71 percent.
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- Falling stock markets and pessimism about emerging markets couldn't stop gold and silver from tumbling this week. Weighed down by the Fed's latest taper, the pair wasn't a safe haven for investors. Gold is still up by 2.9 percent year-to-date, but silver is down about 1.6 percent.
On a technical basis, gold has had trouble breaking through the $1,275 resistance. If it does, that will be the signal that prices are ready to take the next leg higher. Of course, on the downside, levels near $1,200-$1,180 - specifically - offer support.
Silver is currently at the bottom of its short-term range between $19 and $20.50. A break lower exposes the stronger support that corresponds with the June cycle low near $18.
- Crude oil was a mixed bag, as WTI outperformed its European counterpart. Frigid temperatures in the U.S. pushed heating oil supplies lower and that has supported the U.S. benchmark. Technically, nothing has changed. Prices remain range-bound between $92 and $100.
For Brent, $105 offers support, with a breakdown exposing the psychologically-significant $100 level.
- Corn edged higher, but soybeans and wheat slipped. Corn and soy have carved out well-defined technical levels during their consolidation over the past several months. Corn has been bound between $4/bushel and $4.40, while soybeans have been bound between $12.80 and $13.80.
Meanwhile, wheat is in a fairly precipitous downtrend and continues to hit multiyear lows.
- Copper fell to the lowest point since December as macro concerns weighed. If the correction in the stock market continues, prices may move toward the lower end of the range at $3/lb.
- An extremely volatile week for natural gas ended with the fuel losing 7 percent of its value. Prices ended below $5/mmbtu, but at one point reached as high as $5.73 amid the expiration of the February futures contract and furious short-covering.
It's unclear how the weather will develop over the next several weeks, but another record or near-record withdrawal will be reported next Thursday, and the ever-growing inventory deficit will provide support. There is potential for profit-taking to push prices to $4.50/mmbtu or lower-but that would be a buying opportunity. We see fundamentals as supporting prices near $5-or even higher-should the cold continue into February and March.