Gold & Silver; Taxing!

Bullion Round Up

It has become a mantra that every piece of bad economic data will results in higher stock market prices. Nowadays, it looks like investing in the stock market is as easy as 1, 2 and 3. Simply put down an initial investment with a bank that you trust, pick the right stock market (in this case the Dow Industrial or S & P 500) and sit back to enjoy the profit that you can raked in. The general sentiment in the market place points to a global recovery lead by USA and China while the others such as the Eurozone continue to suffer contraction.

Investors continue to search for higher yield and the current stock market rally fulfil their needs. Meanwhile, a small group of investors have generated strong interest in Bitcoin (electronic currency) ever since the Cyprus banking bailout fiasco. The value of a finite electronic currency has soared and provides an alternative investment. Some investors have cried “bubble” in Bitcoin current value but given the lack of alternative, prices may continue to go higher. Unfortunately, the excessive liquidity did not find its way to gold and silver that have declined over the past few months. Both metals faced strong headwinds from good economic data as well as strong US dollars that capped any rallies, investor’s confidence continue to be tested.

Media coverage of a bearish scenario on gold is a constant reminder that the market remains oversold and the short sellers have interest to keep the price low. The selloff in price is associated with large speculative short positions undertaken by hedge funds. In addition, the large outflow of gold backed ETFs as well as constant downgrading by banks help spur the price decline. At the moment, the real support on price remains to be central bank buying of gold bullion as well as physical buying from China. Investing in the precious metals continue to be taxing for investors.

Gold Technical

After many days on range trading, prices eventually broke lower and the bears are in control once again. Prices broke past the 20 DMA support at $ 1592.00 and stop loss order started pile in to add more selling pressure. Gold reached a low of $ 1577.46 on the back of a strong US dollar index as well as a strong rally in the stock market.

Generally, the stock market ignores the negative European economic data and gold continue to lose its shine. Buyers remain on the side-line as gold price could potentially go lower. In addition, this week we are anticipating US non-farm payrolls data which may undermine the gold price if the data is better than expected.

Technically, gold looks weak and may be vulnerable to more selling pressure. The daily signal shows a weakening MACD line that could cross lower again and the stochastic fast line continue to head lower. We expect a volatile price action in the next few days given the US economic data.

Silver Technical

There is no respite as Silver continued to be sold after news broke out that China is holding large amount of reserve which could flood the market. The report from Standard Bank also state that there is lack of demand for the white metal which could further undermine the price. Silver is an industrial metal that prosper alongside a booming economy. It also act as gold’s substitute or usually known as a poor man’s gold. Selling intensifies after it broke below the initial support at $ 28.00 and then previous low of $ 27.93.

We have made in our previous commentary that we will not get carried away due to a dominant US dollar which continues to cap any rallies and we have on many occasion repeat caution of any silver trade. Unless silver can trade above $ 29.50, we will remain bearish and felt that there is too much volatility (and non-volatility) to take a position.

The daily chart continue to show the stochastic fast line bearing lower while the MACD remains stuck in the negative zone.

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03 Apr 2013 | Categories: Gold, Silver

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