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Gold & Silver; Gloomy Days Ahead!

Bullion Round Up

We hardly see any encouraging or optimistic economic recovery data. Despite that, the global stock market is doing well and posting all time high post 2008 financial crisis. Several major currencies are devaluing and investors are busy buying the US Treasury bond as a safety net - pushing the dollar index higher. Funds and other retail investors are profiting from the stock market as it offer better return.

Gold prices dampen further and gold bulls felt like a total outcast. The selling is rampant and it remains bleak in the short term. Physical buyers have grown more cautious towards the yellow metal as they fear lower prices ahead. They might wait on the side-line before buying again. Gold ETF outflow reach record level and CFTC report confirm an increase in speculative short. However, we felt that a price correction is due in the oversold market.

Looking in the next few weeks, lower prices may spark bargain hunters to re-enter and initiate a long position again. Given the oversold market condition, prices are trading at a huge discount if one compare the risk and reward to own gold remain firm. Negative economic data may force central banks around the world to do more of quantitative easing. We have heard from BOE meeting minute that they are considering additional stimulus. Japan outright easing may start in April as Mr Kuroda first priority. The ECB could potentially cut interest rate and China may continue with their loose monetary policy for a little longer.

Economic Round Up

The main highlight from last week came initially from a lower than expected China PMI numbers. It indicates that manufacturing expansion slow in February - but official insist that China’s recovery continues on improving domestic demand and labour market. Others argued that the pace of on-going recovery is mild and this could suggest that PBOC do not need to tighten policy any time soon.

Meanwhile, the Italian election result remains inconclusive. To make matters worse, the Eurozone area posted a higher unemployment rate at 11.9%. Manufacturing PMI remains below 50 for the French and Italian except for Germany. Inflation fell in the Euro zone which sparks debate among analyst that the ECB may need to act to cut the interest rate. Cutting interest rate has been discussed at length but Mr Draghi is not easily persuaded to do so. The euro crisis seems to crawl back to life even without the messy election in Italy. Market will closely monitor the next ECB meeting on March 7th.

Gold Technical

Short Term:
Gold traded lower last week and retest support at $ 1564.00. Selling escalated in European trading hours as negative PMI and the weaker GBP and Euro could spark margin selling. As we approach the US market, safe haven buying appear and push prices as high as $ 1587.00 (38.2%) resistance level. The rally lacks momentum as gold takes a breather and consolidated lower to $ 1575.00. We remain neutral bearish in the short term and will only change our stance if it manage to take out $ 1592 (50%).

Medium Term:
Technically, the MACD is still attempting to cross higher but still rolling in the negative zone. Stochastic is mixed and this may indicate a longer period of consolidation ahead. RSI is still at the oversold zone which may give some support.

We will short the yellow metal at $ 1555 and target $ 1535. Should prices found support at $ 1575 and move above $ 1595 then we look to enter a long trade and target $ 1625 area. Resistance: $ 1587, $ 1592, $ 1625 (50%), $ 1650, $ 1686, $ 1697 (previous high) Support: $ 1564, $1555, $ 1545, $ 1525, $ 1522 (2012 low)

Silver Technical

Short Term:
Silver managed to hold on to its gain after the severe sell off that took it to a new low of $ 27.93. Price broke higher after the overextended sell off that cross below the bottom Bollinger band. The rally took silver as high as $ 28.78 below the upper Bollinger band where it then consolidates above the 38.2% retracement level at $ 28.51. it is too early to take any position on silver but a follow through buying will help it to overcome the $ 29.00 level again.

Medium Term:
Last week, silver bull put up a strong fight and creates a potential hammer reversal on the daily chart. Volume rose suggesting strong interest but the stochastic fast line is still stuck and the MACD rolling ever closer to cross higher. The Bollinger band is trying to converge and at the moment prices may further consolidate.

Looking to buy if $ 29.15 is given and place a long trade to target $ 29.50.
Resistance: $ 29.50, $ 29.74 (38.2%), $ 30.19 (50%) Support: $ 27.93, $ 27.50


Currencies Value Change comment
Euro 1.3033 Euro growing weaker.
AUD 1.0207 Aussie dollar will be greatly affected by the weaker than expected Chinese PMI numbers.
JPY 93.55 Mr Kuroda will be the next governor and we see the yen continue to slide weaker.
US Index 82.36 US dollar index resilient and take out previous resistance level. Safe haven buying on the US dollar.

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.

04 Mar 2013 | Categories: Gold

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