By Ole Hansen The annual celebration of Thanksgiving on the fourth Thursday in November put a dampener on activity across financial markets, including commodities, this past week. News that Iran had reached a temporary deal with the international community created an initial buzz which quickly faded as no major impact on global oil markets will be seen for several months. The Japanese yen resumed its weakening trend while stock markets continued to scale new highs — both being a sign that the general risk-on sentiment remains strong. US economic data is still a key focal point for precious metals which survived another downside attempt but the try for a bounce has so far been unconvincing with the near-term upside potential being limited ahead of the US jobs report on December 6. This will be the last employment report before the Federal Open Market Committee (FOMC) meeting on December 18, and it could offer some valuable clues as to which direction policy makers will choose over the coming months. Copper is steady after finding support from a continued drop in inventories controlled by the two major trading hubs in London and Shanghai. In global oil markets, the divergence between Brent Crude and WTI Crude oil continues with the spread between the two benchmarks reaching the highest level in five months. Supply disruptions, especially in Libya, continue to lend support to Brent Crude while WTI Crude is being forced down under the sheer weight of supply. US production has breached eight million barrels per day for the first time in 25 years while the current level of crude inventories for this time of year stands at the highest since records began in 1981, according to the US Energy Information Administration. Natural gas was the best-performing commodity, rising to a five-month high after seeing the largest monthly gain since March as seasonally colder than expected weather in the US has increased demand. Agricultural commodities were mixed with grains finding some support as the US harvest nears completion, resulting in the focus now increasingly beginning to switch from supply to demand news. The weaker dollar also lifted the prospect for US grains being able to compete for export orders, especially wheat after Argentinian production estimates were lowered. In soft commodities ,the instant and espresso coffee varieties almost went their separate ways while sugar has now dropped by more than 12 percent as hedge funds continue to sell after getting their bets on rising prices spectacularly wrong. What is momentum telling us? When analysing price movements traders and technical analysts often take a look at momentum which is simple way of describing the prevailing direction or trend of a market but also one which gives a hint about a potential change in direction. Momentum indicators can be calculated in many different ways depending on what time horizon is preferred. An instrument can easily have positive short-term momentum within an overall long-term negative trend. The table below gives an idea about the current short-term momentum across the major metals and energy markets. The immediate conclusion is that the metal sector is generally finding itself in a negative stable trend. Copper is an exception as a recent slowing of negative momentum points towards a potential change in direction. Gold and silver have seen negative momentum for more than two weeks while the gold/silver ratio has been bullish for the past three weeks during which time the price of one ounce of gold measured in silver has risen from 59.70 ounces to 62.70 currently. The energy sector, apart from WTI Crude Oil, has seen stable positive momentum over the past week with natural gas having seen the biggest rally of seven percent during this time. The negative trend in WTI Crude Oil has now lasted for a month during which time the price has dropped from USD 101.7 per barrel down below USD 93 per barrel. OPEC meeting unlikely to yield any change Crude oil traders will be focusing on the December 4 OPEC meeting which will be the first time oil ministers from the cartel supplying 40 percent of global oil sit down after the breakthrough in negotiations between Iran and the international community was announced. With Brent Crude continuing to trade near the three-year average and well above the Saudi Arabia-accepted 100 dollar per barrel mark, any major changes in the current production quota of 30 million barrel per day is not expected. The sharp reduction in Libya's export seen since July is showing no signs of improving and with this disruption continuing, the call on the Saudis to make up the shortfall will leave them in no hurry to change production. The price of WTI Crude Oil continue to drop thereby widening its discount to Brent Crude. The price weakness is driven by the continued rise in production in the US from non-conventional production techniques. Infrastructure across the US has failed to keep up with this dramatic rise in production which now, for the first time in 25 years, exceeds eight million barrels per day. Crude oil is therefore not reaching refineries which has created bottlenecks and a buildup in supply which in turn is putting the price under downward pressure. Refinery demand has begun to pick up but whether it will be enough to clear some of the supply glut over the coming months remains to be seen. The near-term outlook for Brent Crude oil is pointing towards an increased chance that the price could be topping out as further upside beyond USD 112/barrel, the October high, seems limited at this stage. A great deal of short covering both outright and on the spread to WTI Crude has helped drive the price back above USD 110/barrel and most of this unwinding were probably done ahead of the Thanksgiving break. WTI Crude needs to see refinery demand continue to climb in order to avoid further losses down towards key support at USD 90/barrel. A move back above USD 93.20/barrel would be the first sign that the selling has begun to run out of steam, signalling a return to the range between 96 and 93 that prevailed before the latest downside price extension. Gold trying to bounce but trend still negative Gold touched the lowest level since July during the past week before positive news from the physical market together with a weaker dollar and a brewing territorial dispute between China and Japan helped trigger a round of short covering. China bought the second highest amount of gold on record from Hong Kong in October which puts it on track to overtake India as the world's biggest consumer of the yellow metal. It also highlights the divergence between strong physical demand and weak paper demand through futures and exchange traded products (ETP). November will be the 11th month in row with falling holdings in ETP's. So far this year a total of 790 tons has been sold, corresponding to the amount that was bought in the previous three years. The weekly chart pattern could potentially indicate that a near-term low has been made and some additional buying lies ahead. The down-trend however remains in place and at this stage we would not expect a bounce to take the price much further than USD 1,277/oz which represents the 38.2 percent retracement of the November sell-off.

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