Gold & Silver; Selling Exhaustion?
Bullion Round Up
To round it all up, the month of June was another setup for a bigger fall on gold and silver. Despite a weaker US dollar index, both failed to capitalise to move to higher prices. Instead, gold faced strong resistance at the high of $ 1425 after previous capitulation high of $ 1487 while silver bullish hammer reversal was history. A new low was made on both not so precious metals as investors turn sellers, while others are busy liquidating their positions. We have warned in our previous note that after a brief rebound rally, previous investors will convert into sellers as they look to cover their gold positions and ride the bear market. A brief revisit to $ 1321 lasted very briefly and a small pump and dump took effect post FOMC statement. Chairman Bernanke did signal tapering and economists’ survey suggests that tapering may take effect this September in the region of $ 20 billion.
What can we expect this week? We felt that the PM market may need time to consolidate and digest the current situation it is in. Gold is oversold but we will not discount the fact that it will retest previous low of $ 1269 before embarking on a rebound. In addition, we are close to end of the month where some short covering is expected. Short covering may help gold rebound but we do not see a shift in the bearish sentiment and after the rebound we see further weakness ahead. Gold back ETFs continue drain out, US economy still expected to recover and Fed tapering is looming. 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.
Economic data that we are interested are as follows: Germany Ifo business climate index, Italian Trade balance, Italian Retail Sales, US Core Durable Goods Orders, US New Home sales, US GDP (QoQ), US Chicago PMI data and host of European countries CPI and PPI data.
Hansen of Saxo bank made a useful summary on the possible scenario
for next few weeks:
“…one could argue that most of the long liquidation from institutional investors and short selling by hedge funds has been done by now. Other markets, especially bond and equity markets in developed economies, may have further to fall. Gold could eventually receive some support on this basis, but if the dollar simultaneously strengthens the positive impact may be limited.”
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. Some spark of physical demand appears in Thailand but the up take is not as great as the previous sell off. 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 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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