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Gold & Silver; Pullback in bullion prices expected?

Bullion Round Up

A pullback in bullion prices are expected after a significant rebound rally – but the main question now is how far is the pullback? Investors are growing wary but nevertheless hopeful that gold will be able to confirm a bottom at $ 1180 area after a dovish remark from Chairman Bernanke. Gold was oversold and short sellers are profit taking as we approach the end of July. Analysts were comparing the recent price action against a 2008 gold chart, calling on a bottom and resurgence in price in the next few months. However, investment banks maintain with their previous recommendation that gold has got more rooms to the downside. Their main argument is that investors, hedge funds and money managers are undergoing an asset reallocation from safe haven assets to a more yield producing one – such as the global equities market. Global equity market from developed and developing countries are recovering after Chairman Bernanke made it clear that low interest rate is here to stay. BOE and ECB also confirm their intention with “forward guidance” policy, thus assuring investors that the liquidity tap is here to stay a little longer.

We have covered the current short covering action weeks before it happened (see our previous articles). As a forward looking publication, we will not discount the fact that gold could maintain this Bull Run in the event that physical demand increases, confidence among investors are restored and more short covering among the sellers (as we approach end of July). Short term support is at previous resistance (now support) at $ 1301 level but other supports are at $ 1270, $ 1250 and $ 1208 area. With a weaker US dollar index, gold prices can maintain its current rebound. However, we will remain cautious on US economic data that could increase the potential of “septapering” or even increase the size of tapering.

Gold Technical Outlook

Looking at the 4 hour charts, gold managed to put higher high and higher lows which suggest a bullish continuation. Elliot wave counts placed the current price action as a corrective move (a-b-c) after the sharp fall to $ 1180.00. However, the corrective wave C has been extended after a short covering rally. The larger downtrend can only continue, if there is an impulsive reversal to $ 1270.00 level. Only a break below $ 1270.00 which is the current lower uptrend line will give the bears more ammunition to reclaim $ 1200.00 again. Otherwise, gold could continue to consolidate at the current range of $ 1300.00 and $ 1350.00 area which will allow the bull to build a steady base and resume higher. Should the uptrend line hold, a retest at $ 1350 and $ 1375 is possible.

Resistance: $ 1348, $ 1355, $ 1387 Support: $ 1308, $ 1300, $ 1270

Traders Notes: Expect a short period of short covering before the market resume lower. Short sellers are looking to short at $ 1326 and $ 1338 area target remains open at the moment. Stop loss is advice at $ 1350 / $ 1368 area.

Short Term (1 week) Medium Term (1-3 weeks) Long Term (1-3 months)
Bullish – target 1355 / 1371 Bearish – target 1155 A rebound rally?

Silver Technical Outlook

Silver prices managed to break above the psychological level of $ 20.00 given the recent strength in gold and dollar weakness but it has hit resistance on the downtrend line (see below chart). In the short term, we see prices consolidate its recent gain and may resume higher if short covering continue. Investors also favoured taking a long position on the white metal as some called for the end of the bear rout. Others claimed that silver has reached a bottom and it is starting to consolidate. However, we continue to see a persistent downtrend and fear that the rebound will be short lived. Any rallies must be sold at the moment unless it trade above $ 21.60 level to give the bull a chance to recover.

Resistance: $ 20.60, $ 21.00, $ 21.59 Support: $ 19.20, $ 19.00

Traders Notes: Stay on the side line. Only a break above $ 21.60 will give the bulls more ammo to retrace higher.

Short Term (1 week) Medium Term (1-3 weeks) Long Term (1-6 months)
Bullish if can break pass $ 20.85 area Bearish Bullish – a potential bull run?

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. 

26 Jul 2013 | Categories: Gold

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