Gold & Silver; Deja Vu
Bullion Round Up
The financial community have come up with many new names and we are not short of creating new ones (whenever we have the chance) given the current haphazard situation. Financial media and other social network came up with word such as new normal economy, post no-qeconomy, Bernanke put and several other unique names to add a little humour back into the industry. At the moment, market has digested post FOMC statement and has chosen not to fight against the Fed. The speech mainly cover that the Fed continues to see the economy improving and will act on either increasing or reducing the pace of asset purchasing programme - depending on the incoming data. Over the past few weeks, economic data has mainly been mixed which justify the continuation of the current programme but the Fed is determined to do tapering when the “threshold” level is hit. In addition, the low inflation numbers gave the Fed rooms to continue easing although Chairman Bernanke did highlight the Fed concern on possible asset bubbles.
The selloff in gold is a deja-vu of the April selloff as we have seen it all before. After a small rebound to $ 1376, prices tumbled to a low of $ 1346 but the selling continues in early European trading hours. Selling pressure started to dominate once $ 1338 and previous low of $ 1321 was given easily. There was no evidence of an uptake on physical demand from Asia over the past few weeks and given the weak US dollar index, gold has failed to capitalize (we raised our concern in our last commentary). Looking forward, we continue to see weakness but then a consolidation to set in the market. A retest of the new low at $ 1286 seems to be the next move and we are not discounting the fact that gold could look lower before finding any strong support. Despite all the selling, we do see that gold has made a key low here and given the recent massive selling - we envisage some short covering to take place (maybe in July).
Teves of UBS summed up nicely risk to a potential short covering as
“… a deterioration in US economic data, perhaps stemming from fiscal drag and/or higher yields, as well as concerns surrounding the US fiscal position, particularly debates on the debt ceiling, which could weigh on the dollar. These continue to offer upside potential for gold, and any move higher is likely to trigger short-covering given the level of positioning. These risks would also be amplified by seasonal strength and physical demand typically kicking in in late Q3 through to the fourth quarter.”
We maintain our bearish view on gold and the selling to continue a little longer. In a healthy market, the sellers usually will face exhaustion and we felt that the gold market soon consolidate before any significant rebound. The new low is set at $ 1286 but we felt that the market could go lower from here. Some traders are covering their short from $ 1390 and $ 1387 and staying on the side line before entering the market again. Bearish sentiment continues to dominate and unless we see a flurry of physical demand (April 2013) then gold prices will remain under pressure.
Only a break above $ 1325 will give bulls some comfort but we see a potential low at $ 1250 for now. Otherwise, we felt that a major short covering could be on the cards if the price is right.
|Resistance: $ 1325, $1366, $ 1423 Support: $ 1286, $ 1250, $ 1200|
Traders Notes: Short gold as it breaks trend line at $ 1390 / $ 1395 with a target at $ 1361 / $ 1355 - stop loss stands at $ 1403 / $ 1425
|Short Term (1 week)||Medium Term (1-3 weeks)||Long Term (1-3 months)|
|Bearish - target $1260||Bearish - target $ 1240||Neutral|
There is no escaping from the sellers as Silver traded lower due to mounting selling pressure. A weak start to the week as silver made lower high and lower low with most trading contain in the range of $ 21.00 to $ 22.50 area before the current selloff that take it back down to $ 19.77. There were no strong buyers and selling will continue to dominate the market. Investors favour lower silver prices and we may continue to see it weaken before any rebound rally.
|Resistance: $ 21.51, $ 22.35, $ 25.59 Support: $ 19.66, $ 19.00|
Traders Notes: Stay on the side line.
|Short Term (1 week)||Medium Term (1-3 weeks)||Long Term (1-6 months)|
|Bearish momentum||Bearish||Bullish - a potential bull run?|
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21 Jun 2013 | Categories: Gold