Gold & Silver; Stocks Bull

Bullion Round Up

After last week backpedalling speech, Chairman Bernanke has helped global equities, currencies and risk assets to rise higher against the US dollar index. The Dow Jones and S & P 500 index has shrugged off negative economic data and working its way to retest the all-time high (despite sign of a Chinese economic slowdown). China “hard landing” scenario does not seem to affect the global market outlook and not reflective on the equity market. Instead, bad data is deemed good as it will encourage government officials to provide easy monetary policy. One could argue that the global equity is completely hooked on accommodative policy and it will be difficult to stop such addiction. Brenda Kelly of IG index wrote a well-argued article that the equity markets not reflective of the global economy. In her article, she argued that the underlying economy does not support the current equity prices and we all know that easy money from central banks is the catalysts.

Chairman Bernanke remain dovish in the hope to create a wealth effect via the equity market but previous talks of tapering have created wave of withdrawal syndrome in emerging economy. The only exception lies with the US equity market that remains well bid despite mixed economic numbers. It is an extraordinary achievement to prop equity market higher despite on-going high unemployment rate and potentially poor earning season. The financial crisis is well over but the underlying problem still exists and proves rather challenging to tackle in the short term. New printed money will soon feed into the system, creating financial bubble that could once again play a pivotal role in creating economic crisis. Eurozone paint a calm picture but many issues remain unsolved and needs addressing. Angela Merkel made it clear that youth unemployment is a worry and getting people back to job is a priority. However, banks in the hardest hit area remain reluctant to lend and this affected SMEs ability to increase production or hire more employees.

In conclusion, the current bull market in equity is a thin layer of ice with loads of stickered logo “FRAGILE” all over it. It is only when investors perception changes, the market will remain irrational and continue to ride the wave higher (a self-full filling prophecy) in the hope that QE never stops.

Gold Technical

Short term set up on gold is bullish and inherently we recommend a cautious buy if a breakout of $ 1290 is given. Prices could continue higher should it break pass previous resistance at $ 1298 and the psychological level of $ 1300. Potentially, prices could retest $ 1321 and short covering rally may push the current rebound higher. Despite that, the medium term bearish perception has not changed. Once the rebound rally is exhausted, we would strongly recommend our readers to short sell the yellow metal again. Commerzbank Bullion weekly argued that strong resistance will prevail at $ 1300 and $ 1321 area. In the meantime, we anticipate higher prices in the short run and will sell the rebound rallies to target previous low of $ 1180 again.

Traders Notes: Dip buyers are cautiously buying with a stop loss at $ 1150 - buying area is $ 1180 / $ 1200 / $ 1225 to go long. Expect a short period of short covering before the market resume lower. Short sellers are looking to short at $ 1318 and $ 1330 area target remains open at the moment. Stop loss is advice at £ 1350 area.

Silver Technical

Silver continue higher after a weaker US dollar index. We continue to see the dollar index in corrective mode and this could well give the white metal a little more room to the upside in the short term. However, the downtrend still persists and we fear that the rebound will be short lived. Any rallies must be sold but we are also aware that the market is near a bottom before it looks to consolidate in this downtrend. With gold prospect being negative, Silver prices fare no better in the short and medium term.

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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17 Jul 2013

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