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.
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.
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)
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.
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
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07 Mar 2013 | Categories: Gold