Gold & Silver; Friday Takedown
Bullion Round Up
The US dollar index - DYX has crossed below its 200 DMA and breaking lower in its current downtrend channel. Further weakness in the index could happen as long as the US economic data came in mixed and the Fed continues to muddle through their decision on tapering the current QE programme. The lack of conviction and certainty has left the US dollar bulls exhausted, closing out their long positions for the moment. FOMC meets next week to discuss their decisions - meanwhile WSJ Jon Hilsenrath had already made it clear on his recent articles that tapering could be implemented with a possible reduction of $ 5 - $ 10 billion dollars as early as next week. Despite the assurance, investors decided to do profit taking than taking any chance of an unexpected decision.
Fed officials are keeping a close eye on all incoming economic data that may support their decision to do so. Others are arguing that the Fed is muddling through several ideas and unable to focus on their previous objectives - such as reducing QE programme when unemployment rate hits 6.5% (currently stands at 7.6%). In addition, the lack of stimulus from the ECB, BOE and BOJ latest policy meeting has strengthened the Euro, GBP and JPY. The previously strong US dollar index left the bull no choice but to bailout. However, we feel that the rally in the index needs this correction in order to remain healthy and continue in its current bull run. A better economic data and tapering will allow a stronger dollar as it provides the market with confidence and hope of a recovery. A quote from Bloomberg by Chris Green at First NZ Capital Ltd summed up that “Markets want stability in the economy but they also want unlimited stimulus. The two can’t continue to exist together”.
The short term outlook on gold is biased to the downside as the next minor support comes in at $ 1365 followed by $1354, $ 1339 and $ 1321. After the rejection on a move higher, it opens up more rooms for the bears to pressure for lower prices. Renewed short selling at or above $ 1400.00 indicate that the area is a strong resistance and only a break above $ 1425 will enable the bulls to aim for higher prices. In the meantime, we expect a period of consolidation but with a biased downside potential.
Gold was range trading between another well found support at $ 1374.50 and $ 1387.00 area. After the better than expected US economic data, gold hit lower numbers - breaking below support at $ 1387 and $ 1380 on the back of the good data. The US dollar index rose slightly after the data but any rallies were sold hard given all the uncertainty on tapering. We continue to expect a sell in any rallies that gold made. A break pass $ 1373 will trigger lower prices around $ 1355 to $ 1345 area. The bears are clearly winning and have the intention to revisit $ 1321 level. However, the previous low at $ 1338 will be a strong support and only if that is given then we see a potential stop loss trigger scenario that could sent gold lower.
|Resistance: $ 1395, $1400, $ 1423 Support: $ 1373, $ 1365, $ 1355|
Traders Notes: Short gold as it breaks trend line at $ 1390 with an open target - stop loss stands at $ 1402.
|Short Term (1 week)||Medium Term (1-3 weeks)||Long Term (1-3 months)|
|Bearish - target $1361||Bearish - target $ 1340||Bearish - target $ 1280|
Once again, silver hit a high of $ 21.90 on the back of a weaker dollar index and sell off in equities. We remain disappointed at the lack of momentum to push for higher prices and this further indicate that the rebound in prices is minimal and rallies are to be sold. The metal put higher low but lower high which indicate further weakness ahead. In addition, silver prices are susceptible to dollar strength. Despite the current weakness in the index, silver is not able to mount higher prices. However, a potential inverted head and shoulder on the hourly chart could be in the making.
|Resistance: $ 22.20, $ 23.35, $ 25.59 Support: $ 21.10, $ 19.66, $ 19.00|
Stay on the side line.
|Short Term (1 week)||Medium Term (1-3 weeks)||Long Term (1-6 months)|
|Bearish momentum||Bearish||Bullish - a potential bull run?|
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14 Jun 2013 | Categories: Gold