COMMODITY REVIEW AND OUTLOOK

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(December 11, 1997) METALS: COPPER–SHORT TERM–The economic problems in Asia and the burdensome supply of copper continue to hold sway over the market. There is talk of moderate Chinese buying, but not enough to prop up the market. Copper is not too cheap, so don't buy it on that account.

RESISTANCE–Resistance basis March lies near 8440, 8710, 8870, 8900, 9000, 9120.

SUPPORT–Support basis March lies near 8150, 7975, 7850.

RECOMMENDATION–My long-term target of 8200 has been reached with nothing to suggest that the lows are in place. If very aggressive, consider selling March in the mid 8400's with 200-300 point stops or over 8710. However, the market may fall prey to sudden and violent rallies. Long-term option traders might consider buying May calls in the “what if” category.

GOLD–SHORT TERM–Gold is at its lowest price level since 1979. In the adding insult to injury department, if you consider a 4% annual inflation rate, the 1979 gold price would be $572. An excellent example of a bad investment. A stronger dollar is weighing on gold as well as ongoing fears of central bank selling. Central banks own about 34,000 tonnes of gold, or about 28% of all the gold that has ever been mined. Asian selling and producer hedging are also a concern. Some analysts believe that current prices will lead to a closure of many high-cost South African mines. I suspect that is of little consequence. Gold is not in tight supply, nor is demand very impressive. A thought here. I'm not sure I buy into the entire story on the central bank sales. I find myself still wondering about the Asian situation. Is the potential for further Asian gold sales real? After all, they are in need of currency, and at least currency offers the opportunity to gain interest. If the market still fears sales of U.S. T-bonds, and according to the WSJ it is still a concern, it would seem to me that it should also be giving serious thought to the prospect of Asians unloading still more of a bad investment. This last round of selling could be the best thing in the world for gold. The best cure for low prices are low prices.

RESISTANCE–Resistance basis February lies near 288, 304-306, 309-311, 313, 315, 318, 320.

SUPPORT–Support basis February is near 283.

RECOMMENDATION–Most traders should consider gold as being in the “too weak to buy, too cheap to sell” category. Rallies are probably a sale, but short-term traders might take a contrarian approach at this time. If aggressive, consider buying 3-5 dollar breaks with 2-3 dollar stops. Take profits in the 294 area. Option traders or long-term traders might consider buying April or June gold calls if bullish, otherwise, stay on the sidelines.

SILVER–SHORT TERM–New highs then a lower close by the silver market. Talk of a squeeze in the cash market and aggressive fund buying sent silver to new highs. Recent action suggests the potential for plenty of upside. Silver has hung in there while copper and gold have become landfill. The inability of silver to make a low and hold it suggests that lows may be in or near. Talk of a squeeze due to tight stocks remains, with silver stocks near a 12-year low, so that story may have some credence. An interesting aspect of silver is that there are virtually no carrying charges in silver. That is, deferred contracts are not appreciably higher than nearby, and on recent rallies, the nearby is beginning to gain. This suggest a bullish situation is developing. At least some analysts suspect that silver could trade into the 800-900 area. Usage has increased every year for the last several years. Silver is beginning to appear to be more of a buy than a sale.

RESISTANCE–Resistance basis March lies near 616-622, 645-650, 683.

SUPPORT–Support basis March lies near 580,570, 551-557, 545 or so,530-533, 524-526.

RECOMMENDATION–Silver bulls should May calls on any dips from current levels if conservative, at current levels if more aggressive. There is the potential for a solid rally. Recent action is beginning to have a bullish tone. Futures traders should stay short term. Aggressive traders might consider buying March in the 580's with stops under 550 or of 10-15 cents. More conservative traders should look for a buying opportunity in the 550's. Look for new highs, objective open. Use stops, as there is no “cost of production” figure that will support this market.

M. Steven Morgan

Consensus National Futures and Financial On Line Index

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