Commentary: Crude shed $0.49, or 0.6%, to settle at $81.25 on Tuesday, but prices are recovering much of those losses in overnight trade. Trading action continues to be dominated by the debt crisis in Ireland and Europe more generally, but the addition of a skirmish between North and South Korea added to concerns on Tuesday. U.S. equities tumbled 1.4% and got close to testing last week’s lows but held on. Similarly, oil prices successfully tested a support level near $80 for a fourth day. We have suggested that traders accumulate positions around that price with tight stops. Crude’s fundamental underpinnings remain bullish and suggestive of a gradual advance. Our view is that the latest negative news flow is merely a part of the wall of worry that all bull markets climb, and would treat it as such—a buying opportunity. Tomorrow brings the government report on U.S. petroleum inventories, and if the API survey is any indication, we may see a bit of reversal in the bullish withdrawals of the past few weeks. The less-authoritative industry report said that crude inventories rose 5.1 million barrels, gasoline inventories fell 0.5 million barrels, and distillate inventories fell 0.3 million barrels in the week ending November 19th. If the Department of Energy figures come in similar, perhaps crude will test $80 yet again, but we expect broader macro sentiment to be the biggest influence on price action. Technical Outlook: Prices continue to consolidate in a familiar range between $79.49 and $83.27, with a strong correlation between crude and the MSCI World Stock Index hinting that a breakout will need a clear reading on overall risk trends. A break higher clears the way for a retest of support-turned-resistance at a rising trend line set from late September, now at $86.51. Alternatively, renewed selling through $79.49 exposes a longer-term trend line set from May now at $77.45. Commentary: Gold rallied almost $10, or 0.73%, to settle at $1376.40 on Tuesday. The advance took place despite a significant rise in the U.S. Dollar versus all of its rivals. The trade-weighted dollar index rose 1.27% thanks to 1.91% decline in the EUR/USD exchange rate, but even commodity currencies such as the Aussie, Cad, and Kiwi fell. AUD/USD, for instance, fell 1.66%. Clearly, gold disconnected from its typical inverse relationship with the greenback, opting to focus on the Korean skirmish and associated geopolitical risks. We have seen this type of response from gold in the past, but such moves are typically not sustained. Moreover, a 0.73% move in gold is not very significant. The biggest story in the gold market, in our view, is the sudden evaporation of interest in gold from investors. Gold ETF holdings are close to levels they were at back in July. Four months of flat performance is in sharp contrast to the surge in holdings we saw earlier this year. From January to July we saw holdings surge almost 9 million troy ounces or 16%. Granted, we cannot measure physical investment demand in real-time, and that could be the missing link that explains the anemic performance of ETF holdings versus the stunning performance of gold prices. But the two components of investment demand have moved in tandem over the past several years, thus we remain wary. Technical Outlook: Prices have breached support-turned-resistance at a rising trend line set from late July, exposing the next upside barrier at $1387.35. Should this level hold, there is potential for prices to carve out the right shoulder in a Head and Shoulders top formation with a neckline at $1322.39, the 38.2% Fibonacci retracement for the 7/28-11/9 advance. Alternatively, a push higher through near-term resistance exposes the record high at $1424.60. Silver - $27.64 // $0.13 // 0.45% Commentary: Silver dropped $0.36, or 1.27%, to $27.51, giving back some of its recent outperformance versus gold. But just when you think the rally in silver may be over, it rises again, surprising to the upside. The culprit continues to be investment demand, with silver ETF holdings in particular, surging. We previously spoke of the anemic performance of gold ETF holdings. Our theory is that investment interest has shifted from gold to silver and that has led to an explosion in silver prices. As the silver market is only one sixth the size of the gold market, this investment demand is having a disproportionate impact on the metal. The gold/silver ratio rose to 49.8, but still stands near recent lows and near the levels of March 2008. (The gold/silver ratio measures the relative performance of the two precious metals. A higher ratio indicates gold outperformance, while a lower ratio indicates silver outperformance). Technical Outlook: Prices have put in a bearish Hanging Man candlestick at resistance marked by the 23.6% Fibonacci retracement of the 10/22-11/09 upswing ($27.82), with a move lower from here targets $26.87, the 38.2% retracement level. Alternatively, a break higher exposes the 30-year high at $29.36.

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