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Gold & Silver (Weekly) 11/11/2012 Flashback

Around this time last year, the selloff began after gold failed to rally above $ 1800.00. Investors decided to begin the onslaught of selling after months of bullish momentum in gold on the back of continuous QE programme by the Federal Reserve. The idea that gold will go higher regardless of the how the economy is doing further fuelled the selling sentiment. Profit taking among long term investors trickled down to hedge funds reducing their positions and the distribution stage took hold. Hard liquidation came after the yellow metal failed to protect its base at $ 1525 area. That price area, which used to be support, will now be a strong resistance. Lower gold prices are to be expected given the rate that the economy is recovering on the back of “easy” money from the government. Investors are ditching safe haven assets and move to equities with huge expectation that better economic numbers will continue.

The question remains if better economic numbers can appear on the back of a strong equity market? Economists are arguing that the “easy” money is flowing towards corporate America and to other global companies which could fuel growth and employment. All is done to kick start the engine that ran out of juice and it looks like more of that juice is needed. Deflation seems to be the next economic problem that central bankers need to tackle. With excess supply of work force, wages either remain frozen or to some lower. Unemployment is set to continue given how companies are reluctant to invest despite sitting on a huge pile of cash. Why would you invest when you see no real demand?
It then takes us back to the real question of how will the economic number continue to look good? The Fed is thinking to taper this year but may have to delay it for a little longer. Meanwhile, the ECB took a surprise route to further cut interest rate to add more juice into the engine with the option of doing a QE style programme. The cost of living was a big topic in the recent UK press. For some reason, inflation rate is addressed as under control by the current government which seems a bit ironic when gas companies are putting up 9% price increase. We are living in a new normal whereby the global economy is run by politicians, bankers and top fat cats that continue to feed that juice down the engine. Only this time, the juice came from us the taxpayers as well as the younger generation that will have to pay for it.

Gold Technical Outlook

Weekly Chart
The weekly outlook paints a rather bearish sentiment with low volume. Prices moved on the back of better economic data such as a higher ADP job numbers and better GDP rate which was not price in. Now, we are building up for next month economic numbers which could spell far worse numbers - which one could argue an analogy of calm before the storm. The RSI has once again rejected any advancement above the 50 area. Meanwhile, the stochastic is rolling lower into oversold territory. The MACD line is trading above the signal line but in danger of crossing lower which could further fuel more selling.

As per our previous commentary “Weekly gold chart paint a slightly negative picture as gold tries to find support after its previous test of $ 1360 area. Last week strong dollar, rising equity market and end of month profit taking pushed gold to a low of $ 130”. Should the yellow metal found support above $ 1251 in the next few weeks, we could see higher prices with possible resistance at $ 1361 followed by $ 1378 and $ 1400. We continue to favour certain positioning by hedge funds and other institution investors given rising uncertainty leading up to US debt ceiling negotiation. A break above the downtrend channel line at $ 1400 could indicate further momentum to retest $ 1500 area in the coming weeks. Selling gold has been a one-sided trade and there are enough room for investors to target higher prices.

Resistance: $ 1321, $ 1375, $ 1400 Support: $ 1251, $ 1281, $ 1306

Traders Notes: Long on the break above $ 1378

Short Term (1 - 3 weeks) Medium Term (1 - 3 months) Long Term (6- 12 months)
Bullish - $ 1378 Bullish - $ 1408 Target $ 1500 / $ 1600

Silver Technical Outlook

Weekly Chart
We continue to sit by our argument last week that “Daily chart shows a potential run up to retest the channel line but weekly chart shows that it is still trending in the bigger downtrend channel that started since May 2011.” We felt that silver prices could pull back a little lower before it can continue to advance higher. Only if it break and close above $ 23.05, then more upside can be considered at this stage. At the moment, silver prices look set to retest support at $ 21.00 area and if that fails then we see lower prices.
Once again, we are not confident to be bullish as silver continue to trade in a bear market. However, we feel that a bottom could be in the making as the Bollinger band is tightening up for a possible breakout. Certainly the selling have throughout the past few months could be receding. Only a break above $ 23.65 will give the bulls more confident to push higher to the upper channel line at $ 25.85 area.

Resistance: $ 22.45, $ 23.90, $ 24.53 Support: $ 21.100, $20.80, $ 19.50

Traders Notes: We would like to re enter if there is a pullback - possibly at $ 21.07 with a tight stop loss.Otherwise, buy on a break above $ 23.60 to target previous high at $ 25 level.

Short Term (1 - 3 weeks) Medium Term (1 - 3 months) Long Term (6 - 12 months)
Bullish on break of $ 23.60 Bullish target $ 26.45 Bullish - a potential bull run?

This article is written according to the author’s views and by no means indicates investment purpose. Opinions expressed at Sharps Pixley Ltd are those of the individual authors and do not necessarily represent the opinion of Sharps Pixley Ltd or its management, shareholders, affiliates and subsidiaries. Sharps Pixley Ltd has not verified the accuracy of any claim or statement made by any independent writer and is reserved as their own and Sharps Pixley Ltd is not accountable for their input. Any opinions, research, analysis, prices or other information contained on this website, by Sharps Pixley Ltd, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. Sharps Pixley Ltd will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. The data contained on this website is not necessarily real-time or accurate. 

11 Nov 2013 | Categories: Gold

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