(MENAFN - Arab News) In a week where the dollar continued to recover and geopolitical tensions eased a bit and Greece finally got its second bailout package, commodities traded generally lower. The DJ-UBS headed for its second weekly loss returning -2.5 percent on the week with losses seen across all sectors, however with some individual gains seen in soft commodities primarily, according to a report prepared by Ole S. Hansen, head of Commodity Strategy, at Saxo Bank.
Following the 100 sell-off the previous week gold took another leg down this week before support was established ahead of crucial support at 1,656, which is fifty percent retracement of the rally from the December low. A confidence building exercise is now needed once again with many being caught out by the third major correction within six months. The safe haven aspect has clearly been left for dead as the volatility we continue to experience does not go hand in hand with a "safe" asset.
The fundamental support from record low interest rates, inflation risk and central bank diversification remains, however the reduced chance of additional quantitative easing in the US following Fridays better than expected employment report could be the focus for some additional selling pressure next week. I eventually expect prices to pick up again following a period of consolidation with resistance at 1,725 and support at 1,655.
The same goes for silver which has also begun to stabilize after a 13 percent top to bottom correction within five days. Despite the sell-off it is still the best-performing metal this year and only trumped by gasoline overall.
While we wait for additional news the price of Brent crude has settled into its new found range above 120 per barrel. The risk premium, which probably equates to between 15-20 dollars remains as traders are very reluctant to book any profits while the geopolitical risk stays high. Questions have also been raised recently whether this recent rise is not also a result of continued strong demand from emerging economies, such as China, at a time where low spare capacity leaves the market less able to respond to sudden supply changes.
During the week hopes were raised that Iran would re-open talks with six world powers, including Russia and China, on its nuclear program. However many previous failed attempts left the market overwhelmingly unimpressed and only a clear move toward a solution would significantly change the sentiment. Speculators have continued to amass exposure to rising prices with the total net long in WTI and Brent crude approaching 500 million barrels. This will obviously leave both crude markets exposed to a sharp correction once the sentiment changes but for now support towards 120 on Brent and 104 on WTI looks solid.
The spread between Brent crude and WTI crude, the world's two leading benchmarks, rose to almost 19, the highest level since October 2011. This is a result of geopolitical risk driving Brent crude (higher) and inventory stock building in the US holding back WTI crude. The latest US government data revealed that stocks in Cushing, the storage and pipeline hub for WTI crude oil, have continued to rise strongly since January. The introduction of a pipeline reversal in the second quarter should help alleviate some of the pressure on cushing as additional oil can be transferred to refineries along the Mexican Gulf. For now though a rapid increase of nearly 8 million barrels to 36.2 million barrels has raised some concerns that last year's peak of 41.9 million could be challenged raising concerns about available capacity.