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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?

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. 

05 Sep 2013 | Categories: Gold

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