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Gold & Silver; Short those Rallies?

Bullion Round Up

The recent activity in gold prices sent mixed signals and traders remain cautious in taking any positions. Gold has managed to close a higher lows as it trade in the ascending triangle formation. It is clear that there are buyers with strong hands at $ 1350 and $ 1360 area but selling remain dominant every time the yellow metal tried to overcome $ 1400. Given the one-sided bearish sentiment, contrarian analysts are looking to follow the “smart money” investors who are betting for higher prices. Short sellers are holding record amount of positions and sooner or later a short covering rally will be triggered. It is a matter of when and not if as long as prices continue to break higher. Recent gold strength also came from a weaker US dollar index and global equities. The “sell in May, go away” sentiment still lingers but the US and Europe equities are faring much better compared to the unstable Nikkei index.

Physical demand continues to support gold prices despite the continuous outflow from gold back ETFs. The recent sell off added pressure on the supply side and premiums for bars and coins rose. Emerging countries are the main benefactor as they continue to buy physical goods and central banks are doing the same. The outflow from ETFs could soon reach an extreme level as the weak hands or speculators take their capital and move it to equities. Others argued that investor’s confidence on ETFs have reached an all-time low, forcing many to opt for the physical metal itself. Gold continue to attract investors who are looking to diversify their portfolio as well as owning a safe haven instruments. The global economy as we have covered in many of our commentaries are not looking any rosier and a trip back to previous financial crisis could easily unravel market confidence.

Looking forward, a short term rally in a bear market is to be expected. As per our previous commentary (see below), this rally could take away those short sellers with weak hands but we would like to warn that this rally has got limits. Another bout of short selling opportunities is in the making and we would not be surprise that resistance at $ 1487 will be strong.

A clear break above $ 1400 and closing above that level will give the bull an edge. CFTC report showed that Hedge Funds are holding large short positions and should gold prices moved higher; the pressure to short covering will be immense. Despite that, gold continue to face strong resistance and selling pressure. It needs to take out $ 1404 followed by $ 1417 and a close above $ 1440 will be a game changer. Upside potentials are there but we advise caution as gold is trading in a bear market. Another failure to break $ 1487 will confirm that a retest to lower prices is in the cards. Getting above $ 1440 and $ 1450 level is considered neutral ground if one look at the weekly chart. In order for the bull to regain confidence, we need to see prices trading above $ 1525 level again. At the moment, it seems a lot harder to reach that scenario unless we see a pick-up in sentiment.

Gold Technical

Gold broke out of the physiological level $ 1400.00 and managed to keep most of its gain. Positive catalysts have finally helped gold to propel higher. The US jobless claim data rose by 10k against expectation while US GDP data came in lower than expected at 2.4% instead of the 2.5% projected. This outbreak could soon send the short sellers running for cover. When this happen, prices could escalate higher and we might be in for a treat today as it is the end of the week and month.

Resistance: $ 1423, $1437, $ 1438 Support: $ 1396, $ 1373, $ 1325

Short Term (1 week) Medium Term (1-3 weeks) Long Term (1-3 months)
Bullish - target $ 1440 at least Bullish - target $ 1460 Bearish - target $ 1280

Silver Technical

Silver managed to break higher after a retest of previous low at $ 22.20 area. Previous selloff to $ 20.00 has created a strong reversal hammer - suggesting that the end of a bearish trend in silver could be in the cards. However, we felt that the upside on silver remains limited to $ 24.50 and $ 25.50 area. Only a break above $ 28.50 will give the metal more rooms to break higher. Meanwhile, a break above $ 23.23 will give the bulls more ammo to retest $ 24.50 area.

Resistance: $ 23.19, $ 23.65, $ 25.59 Support: $ 22.05, $ 19.66, $ 19.00

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?

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. 

31 May 2013 | Categories: Gold

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