Gold & Silver; Green Shoots Everywhere

Bullion Round Up

It is hard to deny that there are increasing amount of improving economic data generated from the Eurozone as well as Great Britain. One could argue that these numbers came out after many rounds of lower numbers. It also acts as a great substitute since the global economy cannot rely on a handful of country to do all the legwork of producing good data. The ECB and BOE have done what it can to stop the fragile economy from going under. It is working somehow and the main theme is to continue what works. Emerging market economies are facing tougher times as easy monetary policy from the west could dry up and the prospect of that is causing pain already. With a global demand created by easy money, it is unsustainable and only a matter of time that central banks start reining in such policy. It might also be an appropriate time for these emerging markets to take up the slack and start easy monetary policy of their own.

The easy options have helped drive and improve the global economy but the hard option to reform and deal with budget deficit will be the next media headline. US debt ceiling will be at the forefront of the financial discussion, Germany election as well as the constant wrangling on austerity. At the moment, market sentiment is buoyed by accommodative policy and it will be hard to change for now. However, we felt that discussion on implementing harder options to tackle the underlying problem that the global economy face will be revived. Given that there are potential green shoots, politicians must not get too complacent. The general public should give politicians more time to do their work as we have seen some improving results. The IMF and troika could well encourage a less stringent austerity measure and relax financial restrictions to allow more economic development. Everyone should cheer and encourage these changes but at the same time not to ignore previous unsolved problems. Despite the promising early green shoots appearing, we still need more confirmation that it is here to stay. Therefore, we conclude that the next few months will remain volatile and turbulent. Politicians will only have themselves to blame if they fail to grasp the current opportunity.

Gold Technical Outlook

A break below the psychological level at $ 1300.00 was a big blow to gold bulls. The first reason is that gold failed to trade back into the uptrend channel line (which was created from previous low of $ 1180.00) and this has become a strong resistance. The second reason, it has been trading the last 2 weeks with lower high and the 4 hour chart shows that it could be a setup for a possible downtrend channel. Finally, the lack of follow through buying after a bullish engulfing candlestick from a poor NFP data seems to add more negative sentiment to hold the yellow metal in the short term.

Should it break below 1283, it will trigger more stop loss and could easily take gold to retest support at $ 1273 area and only a break below $ 1240 will warrant a revisit of $ 1210 area. On the other hand, if it can break above $ 1350 convincingly - we would not be surprise to see higher gold prices due to more short covering.

Traders Notes: Buy the breakout at $ 1353 to target $ 1375 area or higher. Only short gold if it breaks below $ 1280 as downward resumption can continue to target $ 1210 area again.

Silver Technical Outlook

At the moment, Silver prices continued to trade within a downtrend channel. The white metal has tried many times to break above but the longer it takes, the harder it will be. Technically, the daily MACD has slowed down in the negative zone but vulnerable to break lower. Our main concern is that prices have failed to break above the upper downtrend line for several times. RSI and stochastic has also shown downside momentum - suggesting more consolidation and downside risk to come. Support comes in at $ 19.25 and $ 18.71.

We continue to see a persistent downtrend and fear that the rebound will be short lived. Any rallies must be sold at the moment unless it trade above $ 21.60 level to give the bull a chance to recover.

Traders Notes: Stay on the side line. Only a break above $ 21.60 will give the bulls more ammo to retrace higher.

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07 Aug 2013 | Categories: Gold

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