Gold & Silver; Temporary Short Squeeze
Bullion Round Up
Gold prices rose higher on the back of the dovish remark by Chairman Bernanke during his Q & A which sets the short term trend. However, many analysts felt that it is too early to buy into gold given that the downtrend scenario still persists. They also argued that such rebound is corrective after posting a low of $ 1180 and short covering which pushed the current price higher. In our previous commentary, we have highlighted that a short covering rebound rally is due but also warned that after the rebound, we see further retest of previous low at $ 1180 or even lower area. To invalidate the above scenario, gold needs to break pass $ 1350 level and reclaim its allure. We continue to see a sell in rallies as gold is in a bear market and investors’ confidence has not fully recovered.
Currently, the market is trading the latest dovish remark as a positive sign that the printing press will continue for now but tapering is not too far ahead. Chairman Bernanke simply reminded the market to behave and do not try to outdo what the Fed has outlined. They can start tapering or no taper at all and it seems clear that “Forward Guidance” and many dovish remarks were made to weaken the strong US dollar index that is not helping corporate America. Further evidence of economic recovery is needed before the Fed will step on the gas pedal again but it remains clear that the FOMC members are divided. Sending a clear communication is paramount and the market must not jump to conclusion on what the Fed can or cannot do.
With the dollar bulls hiding away - licking on their wounds, gold and silver has got rooms to push higher. Lately, we have seen that a stronger dollar index did not encourage more selling and the effect was rather muted. Short covering is the way forward now but we heed caution that the downtrend still persist.
We maintained our view from our previous commentary that “The rebound in gold prices must be treated cautiously - rising prices could just be a smoke screen to what could be coming next”. We need to see more evidence of selling exhaustion before taking any long positions. The US dollar index is breaking lower but equity bulls are given the green light to head higher. We continue to see that gold prices remain under selling pressure as the Fed made it clear on tapering (only a matter of when not if).
Shorting the metal is far more favourable as it could retest $ 1180 and should it break lower, we see $ 1155 as the next target.
|Resistance: $ 1300, $ 1310, $ 1350 Support: $ 1270, $ 1247, $ 1208|
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 Term (1 week)||Medium Term (1-3 weeks)||Long Term (1-3 months)|
|Bullish - target 1325||Bearish - target 1155||A rebound rally?|
We expect silver prices to move higher as the market digest the dovish remark from Mr Bernanke speech. 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.
|Resistance: $ 20.30, $ 20.44, $ 21.59 Support: $ 18.20, $ 18.00|
Traders Notes: Stay on the side line. Only a break above $ 21.60 will give the bulls more ammo to retrace higher.
|Short Term (1 week)||Medium Term (1-3 weeks)||Long Term (1-6 months)|
|Bullish||Bearish||Bullish - a potential bull run?|
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12 Jul 2013