Gold & Silver; Double Edge Sword
The very nature of holding safe haven assets is due to economic and political uncertainty that investors must bear thus the need for an insurance to protect their wealth. Other investment vehicles may be deemed too risky and not viable for now but long term investors continue to see value in holding the yellow metal. Global economy is recovering slowly and there is no magic to hasten the process. Large supply of slack resources continues to show that this recovery could take some time and it remains rather fragile. Geopolitical tensions in the Middle East region has not subsided, fuelling the prospect of higher inflation and eating away economic demand of other industries. Jobs are available but the large mass of unemployed has to be more mobile to seek jobs. Politicians continue to make hard decisions while central banks continue to print more money (digging new hole) to cover the previous hole they dug. It is not hard to argue that the current economy is sustained by credit and more future credit for as long as central banks can print.
Safe haven assets continue to garner support but price volatility will escalate further. US dollar index have broken above previous downtrend line and David Govett of Marex Spectron argues that “We are seeing at the moment the unlikely scenario of both gold and the dollar moving higher, something that only really happen in times of crisis”. We considered this as a powerful statement as to the outlook that is fast changing given that investors are still fresh from previous crisis. A flashback of previous crisis will have investors running to the hills and safe haven assets could yet be the best trade of the year again.
All in all, a bumpy ride ahead for the next few weeks on gold and silver but we urged buy on the dips. Shorting both metals is possible if it break below the current uptrend channel.
Gold Technical Outlook
Daily
Chart
We
set our target on $ 1438 as a potential breakout level for gold to
move higher. The next resistance will stands at $ 1460 and $ 1475
area which could send a clear message to the short sellers to cover
as much as they can. Break above $ 1475 will have the bulls itching
to retake $ 1525 but it will be a hard battle. Austin Kiddle of
SharpsPixley wrote “The rising market uncertainties are likely to
lead to a rise in the ‘fear index’ in September” and he further
argued that September is a ‘golden month’ for gold, with gold
prices falling in only five Septembers over the last 25 years. We
expect traders to position themselves with trades between the uptrend
channel lines. Given that the MACD is above the centre line, positive
momentum on the current trend remains. However, the MACD histogram as
well as a possible crossover of the MACD line below the signal line
could indicate a small pullback is in the cards. Buy on the dips is
still the recommended strategy for now.
Resistance: $ 1434, $ 1445, $ 1475 Support: $ 1373, $ 1366, $ 1353 |
Traders Notes:
Short at $ 1345 stop $ 1353 target $ 1300. Long
at $ 1356 and $ 1366 stop at $ 1348 target a rebound to $ 1430.
Short Term (1 - 3 weeks) | Medium Term (1 - 3 months) | Long Term (6- 12 months) |
Bullish - target 1475 | Bearish - target 1353 | Target $ 1500 / $ 1600 |
Silver Technical Outlook
4 hour Chart
The 4 hourly
charts continue to interest us, given how price action has developed
in the last few trading days. Commerzbank analyst sees an overbought
market and favour a pullback on current prices. We shared the same
view and suggested the idea to short the metal at specific price
point. A potential Head and Shoulder formation is in the making and
the right hand should looks completed with a neckline at $ 23.40
level. Only a break and close below $ 23.40 will allow traders to
short it and target $ 21.45 area. Technically, the MACD and RSI
indicators seems to suggest strong evidence of a H and S formation
with a potential price objective at $ 21.75 and $ 21.15 area.
Resistance: $ 25.12, $ 25.40, $ 26.79 Support: $ 23.70, $22.80, $ 22.20 |
Traders Notes: Buy
if break $ 24.75 and add on the break of previous high. Short the
metal if it breaks and close below $ 23.50.
Short Term (1 - 3 weeks) | Medium Term (1 - 3 months) | Long Term (6 - 12 months) |
Retest $ 22.00 and $ 21.70 area | Expect consolidation to retest support at $ 22.70 | Bullish - a potential bull run? |
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05 Sep 2013 | Categories: Gold