Gold & Silver; Short Covering
Bullion Round Up
After a hectic start to the month of June, we expect a period of consolidation this week as investors look to digest last week economic data that could set the tone for the rest of this month. Lately, the US economic data has not been encouraging but Fed officials remains steadfast to experiment with their tapering project to gauge market reaction. US equity market did not see this as a vote of confidence and started the month with profit taking. Traders are cautiously worried as tapering may not happen as quickly as the Fed hope given the latest round of weak data. On the other hand, they would like to keep the rally in the equity market going. Dip buying is becoming an essential element as the equity market continues to face volatility. Unless the Fed gets the economic data that it desire, equity traders expect no tapering as a good sign.
Meanwhile, the Japanese equity index - Nikkei continue to be headline financial news. After the BOJ bold asset purchasing programme was enacted, the index enjoyed unprecedented rally with a weakening of the Japanese Yen. The jubilant times was celebrated with optimism but alas all this do come to an end. Last Friday Nonfarm payroll data came in better than expected at 175k against 165k but unemployment rate remains steadfast at 7.6%. Fed officials are keeping a close eye on the unemployment rate and market felt that the talk on tapering is off the table at the moment. Global equities soared higher and the world still needs US dollars! Gold and silver took a big hit lower as the selloff intensifies post NFP data since investors flock to prop up the dollar index. We felt that the talk of no tapering will soon play out that the dollar rebound is temporary. In addition, hedge funds are placing bet on higher gold prices and with short covering in mind we favour higher gold prices.
Our short term outlook remains unchanged at the moment. The next direction on gold and silver remains data orientated and we stand by our previous short term outlook on gold remains murky as prices trade in the range of $ 1380 to $ 1420. It is becoming a repetitive ritual that one must short gold if it re-enter or break above $ 1400. The short sellers have interest to do so and this indicates that a break above $ 1425 will encourage more short covering. On the other hand, a break below $ 1380 could spell trouble and selling pressure could increase again. The risk to the downside remains but short term trading favour a higher gold price. If the situation permits, a weaker dollar index to continue, correction in equity, increase uptake on ETFs product and with a decent physical demand may help gold retest resistance at $ 1424 area. However, our long term projection is to see this small rebound to falter and gold to retest previous low at $ 1321 or even lower.
After the euphoria of breaking out of the tight range trading, prices straight back to where it all started. Gold found support at $ 1381.13 after the better than expected NFP data, sending the dollar and equities higher. It seems that gold will remain in the space of $ 1380 to $ 1420 area for a little while until another breakout from the range appears. Market in the weeks ahead will remain choppy and we could potentially see a rise in gold price when the dollar rebound ends as there is talk of no tapering.
Looking forward, a short term rally in a bear market is to be expected. Another bout of short selling opportunities is in the making and we would not be surprise that resistance at $ 1487.00 will be strong. Gold will try to break above $ 1425.00 but will then face a period of consolidation before taking out $ 1440.00. A period of short covering in the next few weeks could help propel a higher price but we are not surprise to hit resistance and went back down to $ 1321.00 again.
|Resistance: $ 1423, $1437, $ 1438 Support: $ 1384, $ 1373, $ 1325|
Traders Notes: Short gold as it breaks trend line at $ 1390 with an open target - stop loss stands at $ 1402.
|Short Term (1 week)||Medium Term (1-3 weeks)||Long Term (1-3 months)|
|Bullish - target $ 1425 at least||Bullish - target $ 1460||Bearish - target $ 1280|
It looks like we were right to point out from last week commentary that we remain disappointed with Silver. After a better NFP data, Silver rose as high as $ 22.83 before giving up all its gains to a low of $ 21.88. Support was found at the lower range of the Bollinger band while the RSI continues to rise. However, the stochastic fast line has crossed lower and this could well mean more selling pressure ahead. Silver continues to trade in a downtrend and it broke below its 20 DMA after the selloff. Only a break above $ 23.35 will it encourage the bears to do more short covering.
|Resistance: $ 23.19, $ 23.35, $ 25.59 Support: $ 21.80, $ 19.66, $ 19.00|
Traders Notes: Stay on the side line.
|Short Term (1 week)||Medium Term (1-3 weeks)||Long Term (1-6 months)|
|Bullish - Break $ 23.19||Bullish - Retest $ 24.50||Bullish - a potential bull run?|
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10 Jun 2013 | Categories: Gold