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Gold & Silver; Paper Bears VS Physical Bull

Bullion Round Up

Going back a few weeks ago, we witnessed an increase in speculative short by hedge funds and retail investors on the yellow metal. The drive behind the selling momentum lies with a decrease in gold ETF holding as investors liquidate their positions. Better economic data and a strong stock market are also part of the reason for the on-going selling as safe haven appeal subsides. In addition, we witnessed a stronger US dollar index that rose from the depth of 78.91 to the latest high of 82.35. Several banks and brokers have erred to the side and call for the end of the Bull Run on gold. Goldman Sach’s for instance, cut its forecast on gold as they see an increase in real rates.

The selloff has technically damage the gold chart and any reversal seems distant for now. Paper gold took a severe beating during the Lunar New Year period when most of Asia closed. Prices has not recovered post the Lunar holiday as investors wait on the side line for lower prices to go long again. However, recent price weakness has spurred physical demand in Asia. Central banks buying prove to be the main pillars that support the current gold prices from going lower. Time and time again, physical demand in Asia has shown great appetite for the yellow metal as they look for a better store of wealth. Central banks in South Korea claimed that its latest acquisitions help to diversify their portfolio of foreign reserves.

Daily price action showed the battle between Paper gold against Physical gold. Physical buyers (Asia market only) push prices higher and as we enter European and American trading times, the Paper bears fight to protect their short positions hard. We are not able to forecast who will win but we felt the bears have got the upper hand at the moment. However, we do envisage a possible supply disruption on physical gold due while Paper gold is oversold. In the long run, we are biased that Physical gold will help push gold higher.

Gold Technical

Short Term:
Trading remains in a tight range of $ 1570 and $ 1585. It did crawl higher after the release of ADP Nonfarm employment data. We think gold remain clueless and directionless for now as it consolidate at its current level. However, we also ask if a test of $ 1567.33 made yesterday offer support that the bottom is close? We think the risks of prices retesting the low still exist but shorting in the oversold market is getting riskier. In the meantime, we wait for more clues from today Central Banks conference press.

Medium Term:
We were wrong regarding the commentary made on previous post about “Should prices break below $ 1570, selling pressure will increase and a retest of $ 1550 is possible”. Our trade recommendation is on the wrong side of the market and our stop loss help to minimise the loss. MACD is still in the negative zone but it is converging which suggests a possible upside break. However, we need the stochastic to cross higher to be neutral bearish.

Short gold at $ 1568.5 with a stop loss at $ 1572.5 and target $ 1556 - this trade is completed as the stop loss is triggered. Should the selling overextend itself, we look to place a buy at $ 1530 with stop loss of $ 1525 and target $ 1550.
Resistance: $ 1587, $ 1592, $ 1625 (50%), $ 1650, $ 1686, $ 1697 (previous high) Support: $ 1564, $1555, $ 1545, $ 1525, $ 1522 (2012 low)

Silver Technical

Short Term:
The Bollinger band converge and create an upside breakout after a false break lower. However, silver is not able to stay above $ 29.00 and need that buying momentum. The stochastic is showing some positive sign that there are rooms to the upside while the MACD is flat.

Medium Term:
Once again, silver is getting more traction compared to gold. The outflow on silver ETF is minimal as long term investors are holding on for the long run. The daily chart stochastic shows a positive sign that prices can go higher. We would like to see the MACD to cross higher too so as to give support. It remains to be seen if a bottom is already in place for silver but we are close to one.

Short silver at $ 28.45 with a stop loss of $ 28.55 and target $ 28.15. 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 1.2987 With expectation of a possible rate cuts, the Euro retreat continues.
AUD 1.0242 Aussie dollar strengthen after overnight news on Chinese investment.
JPY 93.62 BOJ press conference is highly anticipated to give more direction on the Yen (we expect further weakening).
US Index 82.43 US dollar index is strong after another positive economic data.

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.

07 Mar 2013 | Categories: Gold

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