Gold & Silver; In Limbo!

Bullion Round Up

“Every yuan worth of gold purchased by Chinese households is a yuan they can’t spend on goods and services—spending that’s critical to China’s economic rebalancing” argued Gwynn Guilford from Quartz. This is a classic scenario that is being played out in India, Middle East as well as some of the Western countries. Gold continue to carry a safe haven title and investors are turning to physical forms rather than the paper backed ETFs that continue to see outflow. It is too early to conclude that ETF investors are losing faith in paper backed gold, turning instead to physical form as a better bet. The other possible argument is that holding fiat currencies in times like this (currency wars and QE printing) could have spurred the masses to exchange their hard earned paper money to physical gold. We previously covered that the lack of other alternatives in China (real estate is too expensive) encouraged the “uncles and aunties” to use their savings on gold.

Negative sentiment in the gold market could not get any worse as mainstream media have reused the same negative statement such as “continued outflows in gold ETFs persist” and “stocks are looking more attractive”. Most investors already know of such outflow and the current price action discounts every hope, fear and expectations. Therefore, the current gold price has taken all of that into consideration and reflects the market price. Gold continue to thread in oversold territory and the bears have full control. Short sellers continue to dominate “Hedge fund bets on lower commodities prices” which has increased short positions near to all time high. When the market is so one-sided, we are worried about the potential impact if majority of the short sellers start to cover their positions.

The global economy continue with their money printing programmes and a surprise interest rate cut in Australia and Israel indicate that central banks are worried with the lack of growth. China is showing signs of a slowdown as economists are revising their growth forecast. Eurozone countries are looking at ways to ease the austerity programme beseeched by the Troika and changing their stance to promote more growth. Meanwhile, the US economy is chugging along as economic data are showing some encouraging sign of recovery. What happens if economic crisis bites back?

Gold Technical

Investors have substituted their demand in gold and opted for the safety of the US dollar. US dollar index have risen from previous low of 79 to 83.59 with more room to the upside. After the April selloff, gold has rebounded initially due to a large physical demand that is offsetting the outflow in ETFs. Major central banks have opted to do more quantitative easing which offer support to own gold. The rebound rally is stalling after hitting a high of $ 1488 and the decline in price is mainly due to a stronger US dollar, coupled with the return of the stock markets. As economic and geopolitical risk has been reduced, the need for the yellow metal has also been reduce.

Technically, gold remains weak and biased to more downside pressure as the daily chart shows a falling stochastic and the MACD line which is about to cross lower (trading in the negative zone). The RSI seems to indicate that gold has room to retest last week low at $ 1418 and should that break then $ 1404.

Silver Technical

Silver continue to trade within a descending triangle channel with MACD threading in negative territory and the stochastic fast line showing potential downside pressure. The RSI continue to roll in the oversold area and silver has not been able to break higher after hitting a high on 4^th May at $ 24.45.

In the short term, a break above $ 24.20 will be favourable for the bull as silver will trade outside of this formation and possibly test higher prices at either $ 25.03 (50% retracement) or $ 25.75 (61.8% retracement). The rebound rally lost its steam and silver has not really performed as well as gold. Technically, the daily chart shows a Bollinger band that is coming closer to a breakout. At the moment, the risk for further correction remains high.

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15 May 2013 | Categories: Gold

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