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Gold & Silver; Failed Interventions!

Bullion Round Up
Ever since the financial crisis in 2008, we have seen countless government interventions to save the global economy from the brink of major recession. The recession could have worsen for the developed countries and lay waste to the developing countries, if there were no interventions (meaning to allow free market to dictate).Some of the highlights are the ECB President Mr. Draghi saying “will do whatever it takes” (as well as his famous OMT programme) followed by the US Fed chairman policy to keep interest rate low and embark on several large scale quantitative easing programmes. Similar programmes are used by BOE and BOJ large scale purchase to prop their local economy up. Their main reason to intervene is for the greater good of all in the economy. As per our last few commentaries, we have disagreed to the above argument and we will do so again.

Before we entered the current “new normal” economic situation, the global economy was rapidly expanding on the back of lenient government policies (since they have never had it so good) and not much interventions. Without going over the details, the market is allowed to act accordingly as long as there was money to be made. Money was lent out to make more money, giving a false sense of wealth as long as the value of your property is on the rise. The global economy overextends itself and massive debt in the system was the straw that broke the camel’s back. When that false sense of hope from the highly leveraged and complicated mortgage backed securities became toxic debt, the wealth effect is gone out of the window. In order to fill in the gap, the easiest thing for our current government to do is to print it's way out.

The latest Goldman Sach report states that inflation is still many years away. Therefore, they argued that gold prices will continue to fall and recommended to their clients to short gold. Given the rate of money printing, once again we disagree with GS.

Gold Technical

The early announcement of the FOMC meeting minutes suggest tapering the current QE programme is enough to take gold down. Prices held around the high of $ 1585 during Asian trading hours before the selling pressure start to sets in. Once again, global equities benefited despite the content on the FOMC meeting minutes. Investors flock to the equities and the S and P 500 broke to a new all-time high.

Technically, gold found support at $ 1565 area after breaking the first line of support at $ 1571 (38.2% retracement line). The lower Bollinger band may also lend some support for now but the 4 hourly chart signal that prices may need to consolidate now and the pullback has not ease. The stochastic fast line has crossed south while the MACD may cross lower too. RSI pointed lower and that confirm the selling pressure has not abated.

In the meantime, we will remain cautious and wait for another pullback before adding into our long position.

Short gold at $ 1555 target $ 1525 with a stop loss at $ 1561
Long gold at $ 1578.50 target $ 1603 with a stop loss at $ 1555.50 (in progress)
Long gold at $ 1576.00 target $ 1603 with a stop loss at $ 1580.00 (Profit after SL breached)
Resistance: $ 1590.4, $ 1592, $ 1604, $ 1620 Support: $ 1571, $ 1561, $ 1539, $ 1522 (2012 low)

Short Term (1 week) Medium Term (1-3 weeks) Long Term (1-6 months)
Flat Bullish Bullish

Silver Technical

As expected, silver prices pullback and consolidate its recent gain. Silver has similar set up as gold and in the current market, the bears remain in tight control as investors flock into the stock market rallies. Price went as low as $ 27.54 before regaining some grounds at $ 27.70 area.

However, the technical set up on silver look stronger compared to gold as the stochastic fast line on the daily chart is firmly pointing higher while the MACD attempt to continue higher. We would like to maintain a cautious view on silver and trade it carefully following the advice we mentioned yesterday: If the current reversal trend holds, silver will have the opportunity to retest the downtrend channel at $ 29.30. At the moment, silver will need to maintain the buying momentum and keep its gain.

Long silver at $ 27.45 target $ 27.85 with a stop loss at $ 27.15 - Profit
Long silver at $ 27.65 target $ 28.20 with a stop loss at $ 27.35 (in progress)
Long silver at $ 28.45 target $ 29.00 with a stop loss at $ 28.15
Resistance: $ 28.35, $ 28.87, $ 29.50 Support: $ 26.64, $ 25.97

Short Term (1 week) Medium Term (1-3 weeks) Long Term (1-6 months)
Bullish Bullish Bullish

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.

11 Apr 2013 | Categories: Gold, Silver

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