Gold & Silver; Still Data Dependant (Disinflation Worry)

Bullion Round Up

It comes as no surprise that the price action in gold and silver are heavily dependent on various economic data that affect investors’ interest. Perception and expectations among investors also changes over time. From the beginning of 2013, barrage of negative press and sentiments have accumulated as well as priced into the bullion market. Large outflow of gold backed ETFs was the catalysts, followed by bold prediction of a massive correction on the 12 years bull run is over, the death cross by Societe Gen analysts added pressure, fear soon started a massive snowball effect and liquidation was just around the corner. Painful memories remain fresh in investors’ mind and their perception has not changed for the better. However, we are seeing some changes happening at last as the sellers are applying brakes and a period of consolidation sets in.

This is not to say that the selling is done and over but selling climax is. The consolidation phase will allow the rebuilding on confidence to take place and this should attract more investors to join in again. Gold bulls also argued that the speculators have left the arena for now but long term investors remain steadfast on their positions. Many argued that large swath of liquidity will soon appear in the economy and inflation could well pick up in no time. As an inflation hedge, the prospect of holding gold remains appealing. Money printing over many years to cover bad debts and shore up global economy confidence has decreased the purchasing power of paper money. Should inflation take hold, years of higher interest rate and devaluation of currencies may be needed to rein in the massive liquidity that could overheat the economy again. Asset bubbles remain the biggest risk and the Federal Reserve has paid more attention to such possibility. Holding a piece of safe haven assets as insurance in the portfolio is wise.

Equity market in the US is holding up well despite talks on tapering. The sugar induced rally look set to continue for a foreseeable future and the Fed would like to maintain it for now. Sceptics felt that a massive correction is due and it could well be another domino effect as the equity market reverts back to reality. It is paramount that the new Fed Chairman can control and communicate clearly to avoid such catastrophe. Investors and speculators have interest to keep the equity market running only until they are ready to switch side. Given that it has happened to gold prices, we are not surprise to see similar bloodbath in the equity market.

Gold Technical Outlook

As per our last commentary, we warned the short term possibility as per below paragraph in italics. We continue to see gold range trading but a dovish remark from the FOMC statement could give the edge for the bulls to retake control and test previous resistance level. We will be cautious as we are heading to the end of this week with a new month ahead and a highly better than expected NFP data to be digested (or has it been priced in?).

Technically, a break below $ 1318 will take gold to retest minor support at $ 1315 and $ 1308 but a failure to hold on support at $ 1290 could seriously impair the rebound rally and downtrend resumption can continue. Only a break above $ 1340 and $ 1347 will encourage more short covering and generate more buying interest. However, we remain bearish as long as gold is trading below $ 1525 area and see a period of consolidation before resuming on its uptrend.

Traders Notes: Buy the breakout at $ 1353 to target $ 1375 area or higher. Only short gold if it breaks below $ 1270 as downward resumption can continue to target $ 1210 area again.

Silver Technical Outlook

Despite the US dollar weakness and strength in the gold market, silver could not move higher and remains trapped below $ 20.00 area. Technically, the daily MACD has risen but continue to trade in negative territory and prices have failed to break above the upper downtrend line for three times. RSI and stochastic has also shown downside momentum - suggesting more consolidation and downside risk to come. Support comes in at $ 19.25 and $ 18.71.

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.

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

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01 Aug 2013 | Categories: Gold

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