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Gold & Silver; Deflated!

Bullion Round Up

Deflation was the reason that brought gold prices plunging down said JP Morgan in the latest Bloomberg article. The global rate of inflation has been subdued and most central bank governors seem to preach the same mandate. Given that inflation is tame, central banks can continue with its reckless low interest rate environment as well as the incentive to maintain the printing machine. In the article, JP Morgan basically said that gold investors bet heavily on an outburst of inflation which did not materialise. Therefore, the major sell-off was underway as investors look to exit their long position and look elsewhere for a better yield. The article went an extra mile to suggest that consumers are struggling to make ends meet and it seems hard to believe that inflation is falling. The investment bank argued otherwise and produces their own evidence to back their current theory.

On the other hand, BOfA technical research analyst Stephen Suttmeir argued that gold is currently retracing its current rally despite the overblown sell-off. He added that gold may have given up a significant portion of its recent gains but has not surrendered its bull market status. “The pattern for gold is a consolidation of a longer term uptrend. Bull market can remain bull markets and retrace 38.2% to 61.8% of the advance” he said. Drawing from the low of 2008 to the all-time high of 2011, the Fibonacci retracement are as follows - $ 1447 (31.8), $ 1300 (50%) and $ 1154 (61.8%). Drawing from Stephen’s conclusion, gold bugs may find comfort that the Bull Run may take a little longer to consolidate. However, to many other speculators the current market is a perfect place to accumulate more physical gold and wait for a low price to re-enter their long position.

Our argument remains that the financial and political crisis will re surface and haunts the global economy. Governments are now kicking the cans a little further and buying time to fix the fragile economy. The more they meddle and intervene; they create more problems in the future with no real long term solution. The world economy may be in deflation now but the current money printing programme may one day be the one reason that set off a higher gold price.

Gold Technical

Yesterday, gold put up a decent rebound after touching a low of $ 1325. The low was registered during the late US trading hours when the market is thin. As Asian trading hours enter the re open, bargain hunters snapped up the yellow metals and prices began the rebound to a high of $ 1404 before further consolidation. After the bloodbath, this rebound is considered weak and indicates the lack of demand which may plague gold investors who are still holding gold. They are considered the walking dead because they hope and pray that the margin clerks will not pay them a quick visit. Many others have perished as the price drop was so severe and liquidation seems to dominate.

Current market sentiment suggests a rebound could be expected but will meet strong resistance at $ 1424 (31.8%) and $ 1465 (50%) retracement line. Should prices break higher, short sellers will look to add on their position. We felt that the market will resume lower after this rebound to test the previous low before embarking on re building the Bull Run.

The market will remain turbulent and volatile. This week, gold remain at risk to a possible drop in price before finding a reasonable rebound (a dead cat bounce) before further selling to determine a bottom.

Short gold at $ 1475 target $ 1460 with a stop loss at $ 1480 (Profit)
Short gold at $ 1555 target $ 1525 with a stop loss at $ 1561 (cancelled)
Long gold at $ 1578.50 target $ 1603 with a stop loss at $ 1555.50 (Stop out)
Long gold at $ 1576.00 target $ 1603 with a stop loss at $ 1580.00 (Profit after SL breached)
Stay on the sideline
Resistance: $ 1424, $ 1456, $ 1487 Support: $ 1371, $ 1366, $ 1325

Short Term (1 week) Medium Term (1-3 weeks) Long Term (1-6 months)
Bearish Bearish Bullish

Silver Technical

Silver tried to put up a rebound after touching a low of $ 22 an ounce but shy of breaking above $ 24. The hourly chart indicates that there was strong buying interest at the low price. Prices turned back after registering yesterday’s high at $ 24 which hit the upper Bollinger band and consolidating the rebound. We expect strong resistance at $ 24.18 as well as $ 24.85 area. Technically, the hourly chart indicate that there are more rooms for silver prices to break higher but those who venture in this market tend to be short term speculators. The damage is done and silver will need time to re build before attempting a higher prices.

The prospect of the white metal to rally seems unlikely but a bottom is due. It is impossible to suggest where the bottom will be but staying on the side-line is a better option.

Long silver at $ 27.45 target $ 27.85 with a stop loss at $ 27.15 - Profit
Long silver at $ 27.65 target $ 28.20 with a stop loss at $ 27.75 (SL hit)
Short silver at any rallies
Resistance: $ 28.35, $ 28.87, $ 29.50 Support: $ 22.91, $ 22.00, $ 19.00

Short Term (1 week) Medium Term (1-3 weeks) Long Term (1-6 months)
Bearish Bearish Bullish

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. 

17 Apr 2013 | Categories: Gold

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