Gold & Silver; (Weekly) FOMC, Summers & Tapering
Last week, both gold and silver started on the back of a bad NFP data that pushed the price on the metals higher. We were sceptical of such move as both failed to break previous high, thus the cautioned not to buy on such rally. Break below $ 1350 took a while and the market setup seems to favour flushing out weak long hands as we draw closer to the FOMC meeting. Tapering effect continue to weaken gold and silver while the equity market continue to trade higher (divergence?). Mr Bernanke replacement is likely to be Larry Summers (Obama’s favourite) which add further negativity on a hawkish Federal Reserve. Cooled down tension in Syria has also dampened the reason to hold on safe haven assets. However, we are sceptical that all of the above seems to indicate a possible “sell the rumour, buy the fact” scenario on the safe haven assets. It remains difficult to see that the global economy has recovered to the extent that reduction on money printing is viable. We see tapering as a one-off experiment and the Fed left the door wide open to further QE if the data is bad. A potential big shock for this week is to have a small or no taper with a possible rising tension in Syria.
Gold Technical Outlook
Weekly
Chart
Breakdown on the Elliott wave count ended the
corrective rally on gold price. We have warned in our previous weekly
update the different scenarios - “Otherwise,
the high at $ 1430 level may have been the top and bearish resumption
could play out from here but it will be ideal for another run up
before pulling back”. The upside
resistance now stands at $ 1430 and the creation of lower high and
lower low confirm that gold is resuming lower as traders lock in
profit ahead of the up and coming FOMC meeting that could see the
beginning to tapering. Over the week, talks of Larry Summers getting
the position instead of Janet Yellen seem to add pressure on gold
price. The market sees Mr Summer as the likely candidate who will
push on more monetary tightening instead of the dovish Miss Yellen.
Syria has also agreed to hand over chemical weapon and the tension in
the Middle East has cooled down. Looking ahead, the weekly chart
posted an ‘Evening Star’ candlestick that marks the start of a
reversal trend and in this particular case - gold set to head
lower. Break below $ 1300 open the door to a retest of $ 1275 area
and break below that could see $ 1210 and $ 1180 again. The lack of
fresh buying and previous short covering from short sellers has left
enough rooms for new shorts to enter the market. Take note that gold
is still trading in a Bear market and the larger trend will continue
to dominate to the downside resumption. The only exception is if the
Syria war escalates further and/or FOMC failed to taper or taper a
small token. However, the possibility of the opposite is slim at the
moment. Trade cautiously and it is better to go in flat before the
FOMC meeting.
Resistance: $ 1434, $ 1455, $ 1525 Support: $ 1275, $ 1210, $ 1180 |
Traders Notes:
Short at $ 1345 stop $ 1353 target $ 1300. Stop
loss moved lower to $ 1338 in order to secure some profit on the
initial short. Looking to add on short should we break below the $
1270 area.
Short Term (1 - 3 weeks) | Medium Term (1 - 3 months) | Long Term (6- 12 months) |
Bearish - $ 1280 | Bearish - $ 1215 | Target $ 1500 / $ 1600 |
Silver Technical Outlook
Weekly Chart
The
price action on silver is subject on gold doing well but as we have
mentioned on our daily commentary, alarm was raised when it failed to
move higher on the back of a positive economic data from China. This
corrective rally has come to an end and the downtrend resume with a
potential target of $ 20.60. Previous low could be the next target
should the support at $ 20.60 breaks. We went bearish on our last
weekly update and both price target that we mentioned were achieved -
“The current corrective rally has
retraced below the 23.6% retracement from its low and next support
stands at 38.2% retracement at $ 22.50 followed by a possible retest
at $ 21.80. Should it break below $ 21.80, a revisit to $ 18.90 is in
the bag followed by a possible new low for the year.”
Resistance: $ 25.12, $ 26.90, $ 27.35 Support: $ 23.10, $22.50, $ 21.50 |
Traders Notes:
Short inititated from $ 23.00 level and still running as it hit
target of $ 22.85 and $ 22.50 but recent action have allowed us to
move stop loss to $ 22.00 area. Next target is $ 20.60.
Short Term (1 - 3 weeks) | Medium Term (1 - 3 months) | Long Term (6 - 12 months) |
Possible retest of $ 20.60 area | Bearish $ 20.00 area | Bullish - a potential bull run? |
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16 Sep 2013 | Categories: Gold