Gold & Silver; Further Selling Ahead!

Bullion Round Up

“Whilst there may have been a concerted effort to short the metal, in our view this was only successful due to a fundamental lack of conviction behind gold in any of its key markets, including Asia, the principal source of physical demand,” according to RBC analyst Jonathan Guy. In addition to Jonathan’s argument, we would like to add that the physical buying frenzy may have reached its limit. Gold managed to move higher due to short covering but the continuous outflow of ETF seems to dominate the overall long term confidence in gold prices. We fear that investors who are still holding gold at $ 1300 may consider closing their position either taking small profit or a loss. After all, the gold market is in correction mode and further weakness is not a surprise at all.

Meanwhile, Bloomberg wrote an exclusive report on Janet Yellen who is highly recommended to replace the outgoing Ben Bernanke. Miss Yellen has been a proactive member in the Fed camp to continue the QE programme and in the latest report, seek higher inflation in order to curb rising unemployment. It is too early to say if she will replace Mr Bernanke but she shares the same view in terms of low interest rate, continuous QE programme and a possibility of easing inflation rate. Given the latest soft reading on US GDP numbers, the Fed will more likely to continue the course of monetary easing in the near future.

This week economic data to watch out for are EU unemployment rate (which may add pressure on ECB Draghi to act soon), Chinese Manufacturing PMI (bad data will add global pressure on recovery), US ADP nonfarm employment change (another negative number may send the dollar lower), US ISM manufacturing Index (again a crucial number to determine if the sequester may have started to take hold) and the week to end with US Nonfarm payrolls and % change that will get the biggest media attention.

Gold Technical

Last Friday, gold put up a strong run to the high of $ 1485 before selling pressure came in. Asian trading hours came with strong buying interest and a weaker US dollar help propel the yellow metal. After making 6 out of 7 days gain, sellers came in and possibly locking in their profit as it is the end of the week and close to the end of the month. Gold rebound looks to have run out of steam as analysts are worried that physical demand may dry up soon. Prices have moved higher and it may start putting off potential buyers. In addition, a potential bear flag is in the making and gold is not out of the woods yet. Investment banks are revising their forecast and lower their prediction by a few hundred dollars.

In addition, gold is entering a new month where it is expected to slow down considerably (historically low number in May and June). Traders will be more vigilant for up and coming economic data that may shed more lights to where the market may go. Gold remains at the mercy of the short sellers or potentially new short sellers.

Silver Technical

After breaking pass the 38.2% retracement line at $ 24.32, prices have broken lower. Silver met strong resistance at the 20 DMA $ 25.33 and also resistance at the 50% retracement line at $ 25.03. Technically, the 4 hourly chart indicate a possible blown off top and prices are reversing in the short term. There is additional selling pressure if silver failed to hold support at $ 23.99 and $ 23.72 area. After last Friday rebound, silver may continue to consolidate the recent rise or it could potentially continue on a downward course. We are not sure where the bottom lies but felt that it may retest previous low at $ 22.06.

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29 Apr 2013 | Categories: Gold

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