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Gold & Silver; Short Gold - Hedge Funds

Bullion Round Up

Gold and silver break higher during Asian trading times due to strong buying interest. Bargain hunters went in for some dip buying and took advantage of the current prices. In addition, we have other positive bullion news such as Japan PM Mr Abe electing the next BOJ candidate who may share his dovish view. Traders see this potential marriage as a way forward for more quantitative easing. Meanwhile, European trading hours indicate more buying presence due to Italy election vote that cast some fear and uncertainty trade over the fragile EU economy.

The aftermath of the falling prices in gold and silver is very well documented in several reports which we plan to summarise here. All the reports pointed to one similarity that caused the current prices. According to the CFTC data, fund managers increased their short bets to reach record levels. The last three weeks, funds played the major role in the 8 a.m. selling of gold futures and they increased their bet which caused some weak hands to exit the market. One of the report states hedge funds are in the short bubble of 66,000 gold future contracts (6.6 million ounces or $ 10 billion).

The other argument is how gold is overly dependent on what the Fed will do next. There have been on-going talks to taper the QE programme due to the better economic data. Bullion prices tied with how accommodative the US central banks are. The yellow metal seems to ignore that other central banks are doing additional QEs and pumping more liquidity into the financial market. For instance, it failed to react positively to a lower than expected repayment to the ECB’s second LTRO.

The hedge funds have had some success to push prices down and made other market participant to follow. However, central banks are supporting the market and physical buying of gold is still rampant. After the Lunar New Year, buying interest soared in SGE and according to the IMF data Russia and Turkey central banks added more gold in January. Physical bars are getting scarcer as supply constraint might further support a higher gold price. We therefore argued that the gold bull rally is set to continue despite the current pause to flush out weak hands.

Gold Technical

Short Term:
Prices managed to break higher with gold tested $ 1598.00 but resistance remained strong as we draw closer to the psychological level of $ 1600.00. Several other resistances include the 38.2% retracement line at $ 1604.70 followed by the 50% retracement which could be an important resistance at $ 1620.00. Short term chart signal strong buying interest but we remain cautious on a possible dead cat bounce. Traders are cautious as we enter closer to Mr Bernanke testimony to congress as well as the up and coming sequester.

Medium Term:
As per our previous commentary, gold prices managed to retrace higher after overextending the sell-off. We are not surprise to see some short covering from the bears at this level but they remain to be in firm control. The daily chart RSI remains in oversold grounds while the MACD suggest further consolidation. Failure to hold $ 1550 will be bearish we expect strong buying interest should that happen.

Looking to short only if $ 1550 is given (tight stop loss at $ 1555) and target 2011 low of $ 1525. In the meantime, we are in an open position at $ 1585 and looking to take profit at $ 1600 with a stop loss at $ 1579.00. Resistance: $ 1594.5, $ 1600, $ 1604, $ 1625 (50%), $ 1650, $ 1686, $ 1697 (previous high) Support: $ 1575, $1555, $ 1545, $ 1525, $ 1522 (2012 low)



Silver Technical

Short Term:
Prices traded above the 4, 9 and 18 days MA which suggest strong buying interest and remains to be well supported. The Bollinger band is converging and for a change, prices are following the upper band. The MACD has cross higher and the stochastic is at a strong buying zone. We are not entirely convinced that this could be a strong upside rally until several other resistances are taken out.

Medium Term:
The outlook on silver remains grey as the white metal muddle through different price moving factors. Technically, it follows gold movement and act as a cheaper alternative safe haven investment. The MACD is still rolling at the lower end but attempting to push higher alongside a positive crossover in the stochastic. We will cautiously watch the price development on silver before taking further action.

In the meantime, we prefer to stay on the side line before taking any position.
Resistance: $ 29.26, $ 29.74 (38.2%), $ 30.19 (50%) Support: $ 28.28, $ 28.00, $ 27.50



Currencies

Currencies Value Change comment
Euro 1.3062 Euro lower with the prospect of another voting round in Italian election.
AUD 1.02603 Commodities currencies took a hit with a weaker Chinese numbers.
JPY 91.90 A stronger yen where the weekly chart indicate a break of the uptrend line. Trouble for Yen Bears.
US Index 81.94 US dollar index rising steadily with strong demand.


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 Feb 2013 | Categories: Gold

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