Gold & Silver; Dow 1 - 0 Gold!

Bullion Round Up

Gold prices traded sideways in a tight band of $ 1583 and $ 1576.6. We started this week with few economic data that could generate any direction on the yellow metals. The spectacular rise of the dollar index has put a cap on gold prices. This is coupled with record breaking high in the Dow Jones industrial index that sapped away interest in the safe haven assets. Mainstream media seems to paint a rather gloomy outlook on gold for the foreseeable few weeks.

The latest CFTC report showed hedge funds and money managers cut their net long positions in US gold futures and options by nearly 27% in the week to March 5. SPDR gold trust fell to 1,239.739 tonnes, the lowest since October 2011. This reflects the continuous shift of investor’s interest from safe haven assets to equities. Physical buying from Asia has started to dwindle as investors are on a wait and see mode. Most are waiting either waiting for lower prices to enter or waiting for more direction.

By putting together all of the current situation, gold should have hit rock bottom! The bears have played all the right notes that set up for a lower gold price and yet here we are - consolidating further above $ 1576. We have highlighted in our previous commentary that long term investors ignore this short term noise. Instead, they view this as a buying opportunity to accumulate. Short term investors, mainly the speculators are jumping ship to save what they can. Medium term investors may start to question the viability of holding on the assets that bear no yield.

We take this opportunity to showcase a monthly gold chart with the DJIA as an overlay. Take a deep look and do e-mail us with your answer to the following question. Gold is still in its 12 year bull run, propelled higher with low interest rate and continuous money printing programme by central banks. DJIA is in the same scenario as central banks are propping it up to bring back market confidence. So which of the two indicators looks more like a bubble to you?

Gold Technical

Short Term:
Prices traded higher during Asian trading times and hit resistance at the 38.2 retracement line ($ 1583.82). Failing to break higher, prices break lower and found support at $ 1576.6, above the bottom Bollinger band. The 4 hour chart shows a tight Bollinger band that could indicate imminent breakout in the near future. Gold remain in consolidation mode for now but sentiment remains negative.

Medium Term:
The MACD has crossed but remain in the negative zone while the stochastic have cross higher. Gold is biding its time, consolidating after the overextended sell off but still vulnerable to downside pressure. We will not be surprise if gold retest support at $ 1560 before it can reclaim higher prices at $ 1600. We sense the bottom is near in the oversold market that is constantly being talked down.

Silver Technical

Short Term:
The rally on silver remain capped at $ 29.20 area and now prices are stuck in the same range that it has been trading for the past 2 weeks ($ 28.40 to $ 29.00). Technically, it remains weak with the MACD crossing lower into the negative zone and several key DMA indicate further weakness. Silver is trading in an ascending triangle and the 4 hourly chart shows that a tight Bollinger band suggest a price breakout is imminent.

Medium Term:
On the daily chart, silver looks ready to break higher. However, looks can be deceiving in this particular case due to the negative sentiment in the current precious market. We advise caution when trading silver and will open a position if the situation permits.

Currencies

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12 Mar 2013 | Categories: Gold

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