Gold & Silver; Correcting Higher!

Bullion Round Up

Recent price action in the gold and silver market showed positive momentum as investors sought to buy more of the safe haven assets. There are many reasons why the gold and silver market is starting to look more appealing. Paulson and Soros have liquidated substantial amount of their gold backed ETFs holding - suggesting that the remaining holders are in for the long run and a market bottom has been reached. This has also created a vacuum for investors to start a new position knowing that most of the weak hands have been flushed out and massive liquidation scenario are less likely to happen. In addition, the massive sell-off has now created a contrary trade opportunities as bargain hunters look to build their long positions in a corrective move higher. Despite the fact that negative sentiment continue to shroud the bullion market, bearish news has not created new major sell-off scenario. Instead, lower prices are bought and short sellers continue to cover their positions.

Looking ahead, we remain cautious and see most of the rise in prices is due to bouts of short covering. The fundamental picture has not change as gold n silver continue to trade in a bear market. Despite the negative view, we felt that a corrective move in gold and silver prices is overdue and we could see a run up higher in both metals. Our medium term prediction is for gold to reach $ 1414 and $ 1440 area where resistance to go any higher will be strong. Meanwhile, silver prices could also consolidate after the sell-off and long term investment is viable as long as the global economy is recovering. It remains unclear how high Silver prices might retrace but we felt that $ 24 (38.2%) and $ 26 (50%) per ounce is possible in the medium term.

We continue to share the following worries as per the following script from Edward Meir of INTL:
“Despite these upbeat reports, we view the latest data as being an upward blip in what we think remains a deceleration in China’s growth trajectory. Having said that, gold prices will likely remain resilient at least through August and it may not be until mid-September when markets turn sloppier in the aftermath of the Fed’s tapering program.”

Gold Technical Outlook

The price action has been resilient and bouts of short covering have helped propel higher prices. Only a break above $ 1350 will give the bulls more power as the short sellers will run to cover. A corrective move higher is possible to target $ 1365, $ 1376 and $ 1415 area. We need to see a convincing follow through buying and a break on the daily chart RSI above 60.00 will give more edge and confirmation on this run higher. The MACD is suggesting potential room to break higher while the stochastic is showing strong momentum. Our only worry is that the larger trend remains down and this bout of short covering rally could soon be over.

Traders Notes: Buy the breakout at $ 1353 to target $ 1375 area or higher. Only short gold if it breaks below $ 1273 as downward resumption can continue to target $ 1210 and $ 1180 area again.

Silver Technical Outlook

A break pass $ 23 and $ 24 dollar per ounce will give silver more rooms to head higher. most of its long term chart indicate an oversold market that is ready to bounce higher and bargain hunters may already have started increasing their long position quietly. The most promising chart is the Weekly chart where the stochastic fast line is trending higher, indicating strong interest and a higher RSI that confirm higher move is possible. The MACD is still in the negative zone but a change in trend could be in play soon. We felt that the downside is limited for now and fresh investment as well as long position can be considered as long as gold prices can head higher.

Traders Notes: Second profit target hit and we would like to raise our stops from $ 21.05 to $ 21.60. We recommended a long position from 20.60.

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16 Aug 2013 | Categories: Gold, Silver

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