Gold & Silver; Pre FOMC & Bernanke Speech
Bullion Round Up
Bullion prices rose higher on the back of short covering but as per our previous commentary, the rebound may prove short-lived for now. However, we do expect a change in direction as short sellers could potentially face selling exhaustion. A corrective move in gold will be healthy for the market as it continues to thread along a bear market. As long as gold trade below $ 1425, downside pressure persists and we cannot ignore the possibility to retest lower low at this moment. Negative elements continued to downplay the benefits of owning gold as central bankers worked their policies to re allocate assets to other productive area of the economy. Despite that, Ken Rogoff made a valid argument that “policymakers should be cautious in interpreting the plunge in gold prices as a vote of confidence in their performance”.
Market anticipates a rather hawkish comment coming out from the FOMC statement. Investors will be heavily focused on key words such as “tapering, scaled back on QE, when and how much”. Therefore, expect a volatile trading session as traders try to positions their trade before and after the statement is release. In addition, computer trading system will create more turmoil where spikes or sudden large volume will dominate before the dust settles. We remain biased on the downside on gold prices but do acknowledge that a bottom is near. The release of the FOMC statement and Bernanke speech could well be the catalysts for gold to move higher given that its recent price action had already priced in most of the negative scenarios. We expect gold to initially tumble hard - retesting previous low before a sharp reversal higher. Dip buyers will be lurking around the $ 1180 - $ 1200 area but tight stop loss is highly advised as the market could break lower. Price action is never dull on FOMC days - so helmets on and don’t take silly risks.
Yesterday price action proves rather similar as the start of the week. Asian market pushed gold higher and once Europe and the US enters, price advanced stop in sideways trading. We maintained our view from our previous commentary that “The rebound in gold prices must be treated cautiously - rising prices could just be a smoke screen to what could be coming next”. We need to see more evidence of selling exhaustion before taking any long positions. With the rally in US dollar pretty much intact, it is far too risky to buy the yellow metal. Shorting the metal is far more favourable as it could retest $ 1180 and should it break lower, we see $ 1155 as the next target. With the build-up to the FOMC statement release, prices will be a lot more volatile and further short covering could be in the cards. However, failure to take out $ 1269 by tomorrow could prove that a retest lower is possible.
|Resistance: $ 1260, $1269, $ 1300 Support: $ 1207, $ 1200, $ 1180|
Traders Notes: Dip buyers are cautiously buying with a stop loss at $ 1150 - buying area is $ 1180 / $ 1200 / $ 1225 to go long. Expect a short period of short covering before the market resume lower.
|Short Term (1 week)||Medium Term (1-3 weeks)||Long Term (1-3 months)|
|Bearish - target $1200||Bullish - target 1285||A rebound rally?|
Surprisingly, a strong dollar index did not force further selling in the Silver market. Recent safe haven buying in gold has help support the white metal above $ 19.00 level. However, the downtrend still persists and we fear that the rebound will be short lived. Any rallies must be sold but we are also aware that the market is near a bottom before it looks to consolidate in this downtrend. With gold prospect being negative, Silver prices fare no better in the short and medium term.
|Resistance: $ 20.11, $ 20.44, $ 21.59 Support: $ 18.20, $ 18.00|
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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10 Jul 2013 | Categories: Gold