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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.

Gold Technical

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?

Silver Technical

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?

This article is written according to the author’s views and by no means indicates investment purpose. Opinions expressed at Sharps Pixley Ltd are those of the individual authors and do not necessarily represent the opinion of Sharps Pixley Ltd or its management, shareholders, affiliates and subsidiaries. Sharps Pixley Ltd has not verified the accuracy of any claim or statement made by any independent writer and is reserved as their own and Sharps Pixley Ltd is not accountable for their input. Any opinions, research, analysis, prices or other information contained on this website, by Sharps Pixley Ltd, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. Sharps Pixley Ltd will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. The data contained on this website is not necessarily real-time or accurate. 

12 Jul 2013 | Categories: Gold

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