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Gold & Silver; Test of confidence!

Bullion Round Up

“Who is selling? And why?” asked several (frustrated) traders. One of the biggest reasons is the record exit from SPDR gold fund investors who are fleeing for a better return elsewhere. We apologised but have to recycle the usual reasons that we played countless times. Market perception promoted by the media and the Fed, argued that equities are still undervalued the general economic sentiment are poised to a stronger road of recovery. We beg to differ and disagree but when the herds of investors (weak hands investors) are running around like headless chicken, it is to no surprise that they start to abandon ship first.

Our argument is based on a long term perspective that gold will continue to be an inflation hedge and wealth protector in times of currency devaluation. Ownership of physical gold is on the increase as general public mistrust banks and governments’ ability to manage wealth. Developing economy citizens bought more gold as their wealth rises with a possible threat of inflation - such as China. Meanwhile, a “struggling” developed country faced with no growth prospect and huge debt ceiling also create an environment for its citizen to buy gold as a protection. Overall demand for the yellow metal does exist and the fundamental reasons remain strong to own it.

In order to answer the above question of who is selling? Our answer is the same with Credit Suisse analyst “we don’t know. But we only know this is a broad based exit of some investors from the GLD market”. It is easy to explain why prices are falling but to understand the real motive behind the coordinated and timely selling is another matter. US economy is barely expanding and we are due to learn more about the economic fate of the Eurozone if Italy election did not prove favourable.

Gold Technical

Short Term:
After a strong rebound from the February low of $ 1554.00, gold tested $ 1620 resistance level and broke lower after a bear flag rally. It failed to find support at the 38.2% retracement line at $ 1595. Instead, it broke lower taking out the 50% and 61.8% with it. Our medium term prediction did warn that we remain neutral bearish due to a potential bear flag after the rebound. Prices did break higher and overextended itself above the upper Bollinger band. Stochastic remain weak and the MACD still rolling lower. It will need to consolidate further before another attempt to break higher.

Medium Term:
Even though the stochastic moved higher showing some buying interest, we remain worried as the MACD line has not cross positively. RSI remains at the oversold area and prices trading below the 4 and 9 DMA line which could add more selling pressure. A retest of key support will be crucial for gold in the next few weeks which may determine its next direction.

We will short the yellow metal at $ 1555 and target $ 1535. Should prices found support at $ 1575 and move above $ 1595 then we look to enter a long trade and target $ 1625 area. Resistance: $ 1621, $ 1625 (50%), $ 1650, $ 1686, $ 1697 (previous high) Support: $ 1575, $1555, $ 1545, $ 1525, $ 1522 (2012 low)

Silver Technical

Short Term:
With the MACD crossing back into the negative zone, we see more consolidation at this area between $ 28.45 and $ 28.75. Yesterday selling look overextended on the hourly chart as it breaks below the lower Bollinger band. In the short term, we fear the weakness will continue for a little longer but buying interest will revive it support is found above $ 28.50.

Medium Term:
We would like to remain cautious on Silver as it lacks the bullish momentum to move higher. Silver has bounced off the lower downtrend line but the MACD has not converged higher. In addition, the stochastic has crossed lower again after the initial rally. We remain neutral bearish for now.

Looking to buy if $ 29.50 is given and place a long trade to target $ 30.15.
Resistance: $ 29.50, $ 29.74 (38.2%), $ 30.19 (50%) Support: $ 28.28, $ 28.00, $ 27.50


Currencies Value Change comment
Euro 1.3064 Euro stabilises for now.
AUD 1.02207 Aussie dollar will be greatly affected by the weaker than expected Chinese PMI numbers.
JPY 92.51 Mr Kuroda will be the next governor and we see the yen continue to slide weaker as they are encouraged to further weaken the Yen.
US Index 81.93 US dollar index resilient and retesting previous resistance level of 82.10.

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.

01 Mar 2013 | Categories: Gold

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