Gold & Silver; Permabulls Era?

Bullion Round Up

A rising US real yields, stronger US dollar index, tapering of the QE programme and worries about China financial system added selling pressure towards gold and silver. With inflation numbers under control, safe haven asset is not being sought after and losing its appeal among investors. Despite the fact that prices are trading at lower level, physical buying that was once seen during April sell-off has not materialise. Bearish sentiment continues to dominate the scene as the outflow in ETFs gold funds continued. A break below previous low at $ 1321 and the psychological level of $ 1300 sent gold lower.

Further liquidation and margin calls were the prime suspect that drove prices lower. Daily chart shows that gold prices returned to an oversold territory with the RSI as low as 29.70 level while the MACD look set to continue lower. Only a break above $ 1345 and $ 1360 will give the bears reason to cover their short positions. A rebound in gold is expected to be short live for now and tapering expectation will be data dependent which on the other hand could affect the dollar index. In the meantime, lower prices are to be expected and our argument is shared by Mr Schubert of NBD emirates:
Regarding the mid-term outlook, Schubert added that the gold market was now firmly under the control of the shorts and that was most likely going to stay this way, "until the market finds a real spark to force these shorts to cover their position."

Meanwhile, Goldman Chief economist said that the market got ahead of itself regarding FOMC statement on tapering. Mr Hatzius argued that “market participants have shifted their monetary policy expectations more broadly than suggested by the small change in QE forecasts”. Others warned that Mr Bernanke tapering statement may have sent the wrong message to the market that causes the rising bond yield. The consequences and effects are playing out as we witness a larger sell off in global equities. Emerging market got hit harder as the promise of endless easy money will soon end. Other equity market that rely heavily on QE money also decided to lock in profit and start the “sell in May and go away” notion. Our main concern is that the Fed could turn around and assess the damage it has done by adding on the QE programme as they see fit should the economy faltered.

Gold Technical

Gold started the day retesting $ 1300.00 but the lack of follow up buying at lower prices has actually intensified the sell in rally. We maintain our bearish view on gold and the selling to continue a little longer. In a healthy market, the sellers usually will face exhaustion and we felt that the gold market soon consolidate before any significant rebound. The new low is set at $ 1269 but we felt that the market could retest low before a potential rebound. Investors are wary of another leg lower but dip buyers could eventually take the market higher by surprise.

Only a break above $ 1325 will give bulls some comfort but we see a potential low at $ 1250 for now. Otherwise, we felt that a major short covering could be on the cards if the situation allows.

Resistance: $ 1325, $1366, $ 1423 Support: $ 1269, $ 1250, $ 1200


Traders Notes: Buy at $ 1250 / $ 1260 small contract to accumulate - Stop Loss at $ 1235 with target at $ 1318 and $ 1340.

Short Term (1 week) Medium Term (1-3 weeks) Long Term (1-3 months)
Bearish - target $1260 Bearish - target $ 1240 Neutral



Silver Technical

A dead cat bounce rally appears in the silver market after a stronger US dollar index and a heavy selloff in the equity market. Silver prices fared no better but last week it ended with a rebound to a high of $ 20.02. We remain bearish and see further downside on the white metal for now. The lack of physical demand adds further selling pressure for now and unless Gold prices can move higher, then we expect silver to retest lower numbers. There were no strong buyers and selling will continue to dominate the market. Investors favour lower silver prices and we may continue to see it weaken before any rebound rally.

Resistance: $ 21.51, $ 22.35, $ 25.59 Support: $ 19.38, $ 19.00


Traders Notes: Stay on the side line.

Short Term (1 week) Medium Term (1-3 weeks) Long Term (1-6 months)
Bearish momentum Bearish Bullish - a potential bull run?



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25 Jun 2013

About the author

Robert Jillies

Robert is the youngster in the team and comes with a technology background. He is currently adding journalism and fundamental market research to his repertoire.

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