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Gold & Silver; Downtrend Resumption?

Bullion Round Up

Traders spent most of last week scratching their heads and trying to avoid taking too much risk given the release of many important economic data. Expectation for a better US economic data was high and tapering was constantly on the agenda. Taking a trading position bears a significant risk as prices tend to swing wildly and stops were more likely to be taken out. After a week of volatile up and down, we started this week with more positive economic data from China, UK and the Eurozone. Despite that, bullion prices continue to range bound and remains directionless. Gold prices continue to trade between $ 1300 to $ 1340 ranges after a worse than expected NFP data which sparks some short covering rally. Silver managed to spike higher but it fails to break out of its downtrend channel and hit resistance again.

A weaker US dollar index is supportive for a move higher in bullion prices and this happened last Friday but a lack of follow through buying left many wondering if the rally has legs. The yellow metal remains in a bear market and we cannot ignore the fact that downtrend resumption could be next. In our previous commentary, we have highlighted the risk of short covering after making a low at $ 1180.00 and also warned how vulnerable it still is after a rebound rally in price. The overall timing and conditions for downtrend resumption remains unpredictable for now. Investors continue to carry a negative sentiment to hold on the safe haven assets after a severe sell off in April this year. Gold backed ETFs continue to see outflow in the month of July albeit at a slower pace. Several conditions have supported the gold price such as the strong psychical demand from China as well as the drop in COMEX inventories that left many questioning a possible bullion bank run.

Meanwhile, Precious Metals report from Emirates NBD reflects that the latest COTR (end of business day 30th July) shows a reduction of long positions, while short positions have got added. This is also supported by report from Mr Hansen of Saxo banks “hedge funds cut their bullish bets on rising commodity prices by 10 % during the week ending July 30”. The reason we highlighted the above points is mainly because downtrend resumption could start soon and we are trying to understand market sentiment and wait for further confirmation. We have been warned, spotting an early sign might help us gauge where the market may go in the next few weeks.

Gold Technical Outlook

At the moment, the gold price is still range bound and a break on either side will determine a specific direction. Should it break below 1283, it will trigger more stop loss and could easily take gold to retest support at $ 1273 area and only a break below $ 1240 will warrant a revisit of $ 1210 area. On the other hand, if it can break above $ 1350 convincingly - we would not be surprise to see higher gold prices due to more short covering.

Should the US dollar index resume higher or more positive economic data point to “septapering”, selling on gold could further escalate. Despite that, David Govett of Marex Spectron made a very good point that August tend to be a good month for gold and it could well mean that gold to retest support before rising higher.

Resistance: $ 1318, $ 1340, $ 1347 Support: $ 1283, $ 1244, $ 1210

Traders Notes: Buy the breakout at $ 1353 to target $ 1375 area or higher. Only short gold if it breaks below $ 1280 as downward resumption can continue to target $ 1210 area again.

Short Term (1 week) Medium Term (1-3 weeks) Long Term (1-3 months)
Bullish - target 1355 / 1371 Bearish - target 1210 A rebound rally?

Silver Technical Outlook

At the moment, Silver prices showed divergence and this made gold bulls rather on the edge. The white metal has tried many times to break above but the longer it takes, the harder it will be. A break below will suggest that this area will be a strong resistance but vice versa if it managed to break higher. Technically, the daily MACD has slowed down in the negative zone but vulnerable to break lower. Our main concern is that prices have failed to break above the upper downtrend line for several times. RSI and stochastic has also shown downside momentum - suggesting more consolidation and downside risk to come. Support comes in at $ 19.25 and $ 18.71.

We continue to see a persistent downtrend and fear that the rebound will be short lived. Any rallies must be sold at the moment unless it trade above $ 21.60 level to give the bull a chance to recover.

Resistance: $ 20.60, $ 21.00, $ 21.59 Support: $ 19.20, $ 19.00

Traders Notes: Stay on the side line. Only a break above $ 21.60 will give the bulls more ammo to retrace higher.

Short Term (1 week) Medium Term (1-3 weeks) Long Term (1-6 months)
Bullish if can break pass $ 20.55 area Bearish - target outlandish at $ 17.00 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. 

06 Aug 2013 | Categories: Gold

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