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Gold & Silver; Cheap Gold

Bullion Round Up

Post FOMC meeting minute, gold tumbled to as long as $ 1554 as the selling continued throughout the new Asian trading hours. Despite a pick-up in physical demand, COMEX paper gold is heavily shorted with an increase in Open Interest contract. The initial rumour is a possible long liquidation from a failing hedge fund company. Traders were acting like headless chicken but selling continued even before the meeting minutes announced. General sentiment takes cue from a hawkish remarked made by several FOMC members about tapering the quantitative easing programme.

Meanwhile, the pick-up in physical demand in India could stutter as the government look to increase the import duty again. “The gold industry fears they may re-impose the excise tax, which was scrapped last year”. The current tax levy stands at 6% and may increase as government seeks to narrow a widening current-account deficit. Despite the better expected economic numbers, China officials warned at the possibility to curb their easing policy in order to stunt property inflation. All in all, a lacklustre physical demand may not help to support the current selling pressure. We expect prices to potentially retest December 2011 low at $ 1525 if the support at $ 1550 is given.

Economic Round up

Asian market tumbled after the FOMC meeting minutes that suggest some members could take away the liquidity juice. Commodities and commodity currencies dropped as fears gripped on a possible end of QE. There was also fear that US stock markets have reached a top and a correction phase could set in to adjust market equilibrium after posting a strong rally. Dow posted a loss of 108 points and retraced to 13867 while the S&P 500 tumbled from its high of 1530 to 1499.

European stocks fare no better as they took similar beating. Euro-area manufacturing and services contracted at a faster pace than economists forecast in February as it struggles to recover from the on-going recession. Early US trading saw a weaker than expected Philly Fed numbers that fall to its lowest since June. The data sent mixed picture on the US recovery but market are still optimistic regardless.

Gold Technical

Short Term:
Gold recorded a low of $ 1555 before gaining positive traction to take out resistance at $ 1574 and settled above $ 1580. The other positive takeaway is the stochastic fast line has crossed higher but the MACD remained stuck in the negative zone. This is a typical consolidation zone which could subject to dead cat bounce on gold. It also indicates that the yellow metal is still vulnerable to bouts of selling and more volatile retest on a strong support. A break below $ 1550 opens the door for us to short the market (tight stop loss at $ 1555) and target 2011 low of $ 1525.

Medium Term:
The RSI is stuck in the oversold territory at 26.023 and prices still trading below the bottom range of the Bollinger band. This may indicate that prices have rooms to rebound and try to realign after an overextended sell off. We remain bearish and still feel gold prices need to test and build a strong base before any higher rebound.

Looking to short only if $ 1550 is given (tight stop loss at %$ 1555) and target 2011 low of $ 1525. In the meantime, we are looking for a rebound from $ 1585 to test resistance at $ 1600 area. Resistance: $ 1618, $ 1625, $ 1632, $ 1650, $ 1674 (50 DMA), $ 1686, $ 1697 (previous high) Support: $ 1575, $ 1545, $ 1525, $ 1522 (2012 low)

Silver Technical

Short Term:
The low of $ 28.28 is established as it touched the lower end of the downtrend channel line. Daily chart put up an indecision day with a strong tail suggesting buying interest but we are still wary of any strong upward momentum. We will remain bearish for now and only change the course when prices moved higher with the other Moving Average indicator.

Medium Term:
Stochastic still in the negative zone and we are wary of more selling in silver as the MACD stuck at the lower range. The RSI remains in the oversold territory and could be there for some time until it complete the consolidation phase.

Our buy recommendation is in place at $ 28.75 (stop loss at $ 28.60) and target $ 29.00 area and we could adjust our trailing stop should prices move higher.
Resistance: $ 31.23, $ 31.60, $ 32.47 (month high), $ 33.54 (downtrend line), $ 35.35 (October high) Support: $ 28.28, $ 28.00, $ 27.50


Currencies Value Change comment
Euro 1.3190 Euro shaken as we draw closer to Italy election plus a weakening economic number.
AUD 1.0248 Commodities currencies took a hit despite a more positive Chinese data.
JPY 92.93 JPY strengthen in the face of a stronger USD.
US Index 81.40 US dollar index steadily rising as the stock markets tumbled.

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

22 Feb 2013 | Categories: Gold

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