Commentary: Crude oil fluctuated on Thursday, but ultimately finished the session only slightly higher, +0.14, or 0.16%, to settle at $88.51. The commodity continues to consolidate with little in the way of news flow to spur significant moves in either direction. The bottom line is that prices are digesting the recent run up that took prices from $80 two weeks ago to close to $90. We expect a break of that level in the coming days and weeks before any meaningful correction takes place. Many analysts are beginning to call for prices to surpass $100 sometime next year and we would not take the other side of that. Unless OPEC— specifically Saudi Arabia, the primary swing supplier—increases production notably, inventories will continue to draw down and prices will stay on an upward path. While we aren’t anticipating a super spike akin to 2005 or 2008, given how fast demand has rebounded, it’s something that can’t be ruled out. In fact, 2011 is expected to be a record demand year for crude oil thanks to the ongoing structural increase in emerging market consumption. Technical Outlook: Prices continue to edge lower below horizontal support at $88.63 having completed a bearish Tri-Star candlestick formation below resistance at $90.65, the intersection of the 123.6% Fibonacci extension of the 11/11-11/17 downswing and the top of a rising channel set from late August. Near-term resistance stands at a minor rising trend line set from late November, now at $88.32. A break below this level exposes the 76.4% retracement at $86.61. “Gold ETF holdings fell slightly after increasing notably last week. Holdings still haven’t mustered anything close to a sustainable advance, indicating that financial investors have lost interest in the metal, at least for the time being. Instead, interest seems to have shifted to silver ETFs, where holdings reached a new record high of nearly 483 million troy ounces this week. Regardless, Chinese consumption has more than made up for the recent pause in gold ETF flows, which has allowed prices to stay elevated. It’s worth noting that this week gold found a new catalyst in the form of yields on U.S. Treasuries. We saw U.S. 10-year government bond yields reach six-month highs this week and that has sent gold notably lower. In fact, the correlation between the metal and yields was a near-perfect -0.99 over the last five trading sessions. We have seen various factors send gold lower temporarily in the past—rallies in the U.S. Dollar, for example—but each time gold has bounced back to hit new record highs. Is rising yields the catalyst that finally leads to a sustainable correction in gold? That remains to be seen, but we would be extremely wary of the metal in this environment. “ Technical Outlook: Unchanged from yesterday: “Prices have put in a well-defined Bearish Engulfing candlestick pattern below resistance at $1424.60, the 11/9 wick high. Sellers are now testing initial support lines up at $1385.53, the 14.6% Fibonacci retracement of the 7/28-11/9 advance, with a break below that exposing the 23.6% level at $1361.45. Near-term resistance remains at $1424.60.” Silver - $28.92 // $0.21 // 0.73% Commentary: Silver rose $0.33, or 1.17%, to end the day at $28.72, about $2 below the 30-year highs set earlier in the week. The gold/silver ratio fell slightly to 48.1, near the lowest levels since February 2007. (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: Unchanged from yesterday: “Prices put in a convincing Bearish Engulfing pattern below resistance at $30.39, the 123.6% Fibonacci extension of the 11/9-11/16 decline, hinting renewed selling is ahead. Initial support lines up at $27.88, a horizontal barrier that coincides with a rising trend line connecting major swing lows since late October. A break below that exposes $26.49.”

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