Bid Returning to Oil and Gold Markets

Crude oil prices are now in the "green" for the session (although just), after reacting negatively to OPEC's comment that demand should decline in 2007. Of course, very few of the other markets -- stocks, bonds, and the U.S. dollar -- reacted much at all to the comments that could have been translated into expectations for a global slowdown.

But Goldilocks remains alive and well this morning and so does the expectation for a short-lived hiccup in economic growth and earnings going forward, which perhaps helped put a floor under crude oil prices so far today.

Apart from my near and intermediate term technical work arguing in favor of a recovery rally period for oil prices, from what I am reading geopolitical tensions in the Persian Gulf might be on the verge of ratcheting considerably higher by the end of this week with the arrival of a huge armada of U.S. (also Canadian, French, Israeli) naval power off the coast of Lebanon, and Syria in the Eastern Mediterranean, and in the Persian Gulf off the coast of Iran... for war games. It just so happens that Iran has been holding its own naval war games. So the two powers could find themselves eyeball to eyeball at the end of this month ... right before the Nov. 7th election!

I don't know about you, but such a situation has the potential to invoke "The Law of Unintended Consequences," which might explain the bid returning to the gold market and a potential bid that might park itself in the oil market. And once the bid is firm, then the oil (and gold) market could begin to build-in some "confrontation premium."

Just food for thought, that's all, in a world that is fraught with geopolitical risks nowadays -- risks that some of us think the markets have not discounted enough.

Looking specifically at the U.S. Oil Fund (USO) chart, for the past two weeks nearby crude oil has been carving out a series of lows in the $52.50-$53.00 area concurrent with positive momentum readings that suggest a near-term bottom likely under development.

Likely in development? Yes ... because to confirm a near-term bottom, the USO must hurdle and sustain above 55.60/65 to trigger upside potential into the 58-59 target zone.

Failure to hurdle 55.60/65 will argue that all of the current action is a sideways rest period within a still dominant July-October downtrend.

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