Gold & Silver; Summer Doldrum

Bullion Round Up

So now we know and as we have expected, major central banks are maintaining a dovish approach until they see better economic data. Most see further downside risk in the economy (fragile) and would not risk another relapse. Forward guidance and continued accommodative stance is the best way and may well be kept till end of this year. Despite that, we cannot discount that there are growing green shoots which at the moment are too early to tell (in the EZ as well as in the US). For further development, real reforms and more fundamental changes need to happen. Meanwhile, China continues to communicate that it is facing a slowdown that they can cope with. Other BRICs are changing as they cope with rising middle class demand and their current political situation needs to adapt fast or fail (i.e. need a change in leadership).

Currency wars continue as central banks look to adjust further using whatever tools they may have. Steen Jacobsen of Saxo Bank made a stark warning that the good times may well be over and a cycle for a lower growth could be expected. The OMT, QE and many other fiscal tools that have been deployed has done what it says on the can but they do have an expiry date. Investors as well as the market continue to look for easy money to lead the way but getting them off could be the next challenge for central banks. Should the “real” economy continue to sputter and shown mixed signs then easy monetary will dominate in the next few years. Companies continue to cut cost and eventually we will get to a saturated point of excess space and find equilibrium to “real” demand. There are more that needs to be done and it is not time to be complacent.
As September is just around the corner, market have priced in for tapering to happen this year. The only question is how big will the tapering be and that depends on the economic data. With a new Fed Chairman to be elected, a clear cut communication is needed. Expect thin volume and volatile price movement on any major development but we continue to see a quiet market.

Monday - GBP Services PMI, EUR Retail Sales, US ISM non-manufacturing Index Tuesday - AUD Interest Rate, EUR German Factory Orders, US Redbooks
Wednesday - EUR German Industrial Production, AUD Employment Change
Thursday - US Jobless claim, CNY Chinese PPI (YoY) & CPI (MoM)
Friday - CNY Chinese Retail Sales (YoY)

Gold Technical Outlook

The wild swings and whipsaw are expected - very much part of the culture before a major data is released. Coming to the data, various analysts see that the good numbers have been priced in and gold could well find strong support at 50% retracement of July low to high at $ 1266.00 area.

A break below $ 1240 will call the end of the corrective rally and prices could resume lower to retest $ 1180 or take that out and target for a new low. Only a break above $ 1340 and $ 1347 will encourage more short covering and generate buying interest.

Traders Notes: Buy the breakout at $ 1353 to target $ 1375 area or higher. Only short gold if it breaks below $ 1280 as downward resumption can continue to target $ 1210 area again.

Silver Technical Outlook

At the moment, Silver prices showed divergence and this made gold bulls rather on the edge. The white metal has tried many times to break above but the longer it takes, the harder it will be. A break below will suggest that this area will be a strong resistance but vice versa if it managed to break higher. Technically, the daily MACD has slowed down just about to break lower. Our main concern is that prices have failed to break above the upper downtrend line for several 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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05 Aug 2013

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