Gold & Silver; Asking for Direction!

Bullion Round Up

Official trade data released earlier showed that Chinese exports grew 14.7% from a year earlier in April, while imports grew 16.8%, bringing the country’s trade surplus to USD18.6 billion for the month, above expectations for a surplus of USD 15.05 billion. However, analyst Zhang Zhiwei of Nomura questioned the data and implied there were financial manoeuvring by exporters and speculative capital inflows to mask weakness in real demand (Reuters). The better than expected Chinese data helped Asian stock market to post modest gains.

Chinese Gold consumption increases by 26% in Q1 of 2013 - with sales of jewelleries high on demand as consumers flock to take advantage of the April selloff. China Gold Association confirmed a total of 320.54 tons of gold consumed in China alone but other places such as India, Dubai and the US also have a large appetite for physical demand. The current buying frenzy helped a rebound in gold’s price but analysts feared that the rebound may not last as we draw closer to $ 1500, physical demand may start to ease off. Investors who missed out on the great sales are waiting on the side-line for another price selloff before buying. Despite the strong price rebound, daily ETF outflow continues as hedge funds and retail investors drawn to the strong equities rally.

Precious metal faced strong headwinds due to the lack of safe haven demand. Equities are acting as a better alternative given that bad economic data become a reason to expect longer duration of QE which support stocks, while good economic data seems to reinforce that buying stocks is the way forward. Commodity trader Dan Norcini simply summarise his argument “In Short, it is a ‘no-lose-scenario’ for hedge funds”. He added that the central bankers are pumping more liquidity to prop a higher stock market but warned that the unconventional method could undo all the positive sentiments. There were questions raised with regards to how much higher could stocks go should company fail to produce good earnings figures?

Gold Technical

Gold continue to trade in the range of $ 1440 to $ 1488 and today rebound higher to retest $ 1468 after a retest to previous low at $ 1440. China insatiable physical demand has helped to support a higher gold price despite the continuous ETF outflow. Technically, gold continue to trade in the uptrend line basis the daily chart and yesterday put up higher prices on the back of a weaker US dollar index. The rally remains cap as equities rally continues to take the shine off precious metals. Should we see a slight correction in the equities market, gold could potentially benefit to retest the resistance level at $ 1488.

We would like to repeat our advice from our previous commentary that the gold market could see possible slowdown in physical demand which may weaken gold rebound. In addition, continuous outflow of funds from ETF only increase selling pressure. Investors who are still holding will be wary of a possible margin call again.

Silver Technical

After the better than expected Chinese data, Silver rallied to $ 24.08 but failed to keep its gain. Prices faltered lower and trade at $ 23.80 area where the market open. The positive takeaway is that silver have rebounded from Tuesday low of $ 23.48 and posted higher high and low. The white metal continue to consolidate but the longer it take to do so, the more vulnerable it will be for short sellers to add pressure. Despite a weaker US dollar index, silver did not manage to take full advantage of it.

We continue to warn that the rebound could be on its last leg and a break below the lower trend line (Daily Chart) could spell more downside pressure on the white metal. The market remains bearish and this rebound could prove short lived as the speculators are positioning for more price weakness in the next few weeks.

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09 May 2013 | Categories: Gold

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