Gold & Silver; Further Weakness Ahead

Bullion Round Up

In this article, we would like to just remind our readers that gold and silver remain susceptible to further weakness. Both are trading in a bear market and short sellers have a strong interest to keep prices sustain at lower prices. In addition, many positive news and other elements have not help to spur a rebound rally that is worthy of writing. Rebound rally on both metals have been weak, short term and rather speculative. First there is the lack of demand from investors in the physical market ever since the April sell-off and we continue to see outflow from gold backed ETFs. Second, the US economy is on a recovery path but mixed with hurdles such as sequester, ailing Eurozone economies and a possible slowdown in China. Third, alternative investment can provide better yield elsewhere as the risk of higher inflation subside and the diminishing chance of a global crisis happening also reduce the need to hold safe haven assets.

Given that the current scenario favours lower gold and silver prices, investors are prone to sell and liquidate their long positions. There is no telling how low prices could go before it is considered a bottom but several analysts call for $ 1307 / $ 1301 and break below that a revisit to $ 1285 is a possibility. Citi analyst Tom Fiztpartick calls $ 1260 as a potential target in the medium term. Others have been more aggressive with their bearish view with gold reaching $ 1150. All of these are possibilities as long as the current negative sentiment remains in force. Owning gold and silver in 2013 has been a dismal choice as the financial year started with the FOMC tapering talks, low inflation numbers as well as asset reallocation. Physical buyers continue to wait on the side line for lower prices and it is evident from the recent lack of interest from Asia.
Our 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 Technical

Gold initially rose after touching a low of $ 1361 and managed as high as $ 1376 before the release of the FOMC statement. Prices broke lower post FOMC despite no talks on tapering as the Fed continues its $ 85 billion QE programme. Market reporter from Bloomberg argued that the market has over-tapered and some got disappointed as there were no mention of tapering (i.e. how much and when?). As long as gold trade below $ 1395, the bears continue to dominate and the lack of strong buyers could soften prices further. 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. Otherwise, we felt that a major short covering could be on the cards if the price is right.

Traders Notes: Short gold as it breaks trend line at $ 1390 / $ 1395 with a target at $ 1361 / $ 1355 - stop loss stands at $ 1403 / $ 1425

Silver Technical

Surprisingly silver held at support $ 21.52 and $ 21.43 but weakness in the price look set to continue at the moment. There is no escaping from the sellers as Silver traded lower as selling pressure continues to mount. A weak start to the week as silver made lower high and lower low with most trading contain in the range of $ 21.00 to $ 22.50 area. There were no strong buyers at this price level, instead most are short term speculators dip buying on the market and sell when it spiked higher. Investors favour lower silver prices and we may continue to see it weaken before any rebound rally.

Traders Notes: Stay on the side line.

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20 Jun 2013 | Categories: Gold

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