Gold & Silver; Dead Weight!
Bullion Round Up
The current football line up in the Eurozone team seems to carry a few dead weights. The leading man on this team is Germany who played as the goal keeper - making several splendid saves and carries the heavy burden of reducing the goal deficit. Those in the starting eleven include Belgium, Spain, Italy, France and Ireland supporting the team with what they can. On the substitute bench we have got Cyprus, Greece and Portugal. The recent media attention lies heavily on Cyprus who is facing loyalty issues and probably a messy bailout negotiation programme. It is serving its existing contract with the Eurozone team but at the same time talking to other club (in this case Russia) for help. Report from Bloomberg seems to confirm how unhappy the team captain is upon hearing this news - Merkel Vents Anger at Cyprus over bailout plan as deadline looms.
When plan B does not work are we really going to consider a plan C? Deadline or no deadline, some sort of decision need to be made fast. The Cypriots are getting impatient with the lack of direction and confidence in the government ability to manage this crisis is melting fast. We would not be surprise to see more demonstration and riots on the street of Cyprus. In addition, we could envisage a possible new election of government in the next few months just like the Greece situation. Should the Troika place a heavy hand on the country; Cyprus could be the most viable country to leave the Euro team.
It is still too early to bad mouth the Euro team that is backed by their special manager. Mr Draghi will do everything in his power to maintain harmony in his team and he could see Cyprus as a mere dead weight that is too small to worry for now.
Our attention is piqued on the chart below which shows gold against the US dollar index. Gold closed on positive ground for the last 3 weeks with support from safe haven bid. However, any further rally is subject to the condition of Cyprus bailout programme as well as US economic data. Given the strong outflow of gold back ETF by hedge funds as well as retail investors, it is hard to envisage that gold could make a quick recovery. In addition, a large speculative short positions remains to weigh on gold sentiment.
Last week, gold
retested support at $ 1603.54 and regained some grounds. The 1 hour
chart shows the breakout of the tight Bollinger band and the MACD
pointed lower as the selling pressure increase. The 4 hour chart
signal does not fare any better with the stochastic crossing lower
too. However, the daily chart continues to paint a resilient setup if
it can mount the next resistance at $ 1616.50 and $ 1620.00. We
continue to remain cautious and look to short gold if prices break
below $ 1575.00.
Long gold at $ 1620.00 target $ 1630
with a stop loss at $ 1611.50.
Long gold at $ 1606.50 target $ 1618 with a stop loss at $ 1595.00 - this trade is still running.
Resistance: $ 1615, $ 1625, $ 1634 (50 DMA), $ 1650, $ 1686, $ 1697 (previous high) Support: $ 1600, $ 1584.86, $ 1580.39, $ 1522 (2012 low)
We are left dumbfounded after the rapid sell off in silver during European trading hours. A slight hint of a resolution from the Cyprus seems to turn away the worries that investors had. Silver lost all it gains and went back to the drawing board once again. It retested the low at $ 28.54 before regaining some grounds. The main difference that we see today is the lack of volume that caused a huge drop in price.
Technically, silver is still trading within the tight Bollinger band but the stochastic fast line is pointing lower which indicate selling pressure. We have warned in our previous commentaries that silver has not been acting “normal” and have been extremely volatile. If Cyprus managed to find a solution to the bailout programme, we felt that silver prices may already have priced in the move. Expect more consolidation in the next few days and look out for any fake bull run.
We advise caution
on any silver trade and will only get more bullish if $ 29.50 is
Long silver at $ 29.40 target $
29.80 with a stop loss at $ 29.15
Short silver at $ 28.20 target $ 27.60 with a stop loss at $ 28.40
Resistance: $ 29.50, $ 29.74 (38.2%), $ 30.19 (50%) Support: $ 28.33, $ 27.93, $ 27.50
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