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Gold & Silver; Time Bomb!

Bullion Round Up

Initially, we view gold needs to retest support before embarking on any reversal rally. We have repeatedly mentioned that the last few weeks have been a session of range trading between $ 1560 and $ 1585. Should the upside momentum continue, it has the potential to rally from $ 1600 to $ 1700 if managed funds and retail investors start short covering their positions. Needless to say that gold is still vulnerable if $ 1560 is given and breaks lower to retest previous low of $ 1555 and this could lead to further selling to target $ 1525.

Traders will start to re-evaluate their position fundamentally and technically. We have addressed that sound fundamental on gold still exist and remain supportive of a continuous bull run. Technically, we admit that the recent selling only exacerbate the already negative sentiment over the last 5 months. The return on gold in 2013 has not been encouraging (-5.7%) compared to the DJIA which the year to date return is an astonishing (10.5%). In a typical oversold market, we get continuous negative sentiment as well as repetitive bearish news that discourage investors to look at the facts.
We have seen some positive bias on gold where investors could consider going long again. Several points to take into consideration are 1) oversold market face the threat of short covering 2) gold did retest lower after a positive NFP data but crawled back higher due to central bank buying and robust physical demand from Asia and 3) economic crisis has been postponed but the fragility of any recovery is still a major concern. We cannot help but to add a 4th in this particular commentary. When Goldman Sach and other major banks are shouting to abandon ship - investors should take caution.

The other concern that we have is the increase in anti-austerity campaigns in southern Europe that could politically destabilise the contained crisis. The global economy is highly juiced with freshly printed money. VIX index is soon at all-time low in a volume-less stock market that is making new record via the DJIA and S&P 500. Meanwhile, debt problem remains high and we are experiencing an unusual high unemployment rate in US and Europe. Maybe it is time to wake up and defuse that time bomb before it is too late?

Gold Technical

Short Term:
At the moment, gold seems to have found a bottom after retesting support at $ 1561. Physical demand from China has propelled the yellow metal higher and soon could raise the attention of investors who are waiting on the side-line to join in. This could add pressure on the hedge funds and retails investors who were shorting gold heavily. CFTC report showed that short positions were close to an all-time high. Short covering could be the next catalysts to push the prices higher.

Medium Term:
It may be too early to claim that the bull market is back but it is better than a lacklustre range trading for the past 2 weeks. The range trading period indicate that a base is being build and a bottom has been reached in the oversold market. Gold remain vulnerable to the downside if buying momentum slows down. Technically, it should continue to gain higher prices as the MACD has crossed higher and moving in tandem with the stochastic fast line crossing higher. We have open a long position at $ 1592 and looking to target $ 1605.

Buy gold at $ 1592 and target $ 1605 with a stop loss at $ 1588.50.
Resistance: $ 1598, $ 1604, $ 1625 (50%), $ 1639 (50 DMA), $ 1650, $ 1686, $ 1697 (previous high) Support: $ 1561.4, $1555, $ 1545, $ 1525, $ 1522 (2012 low)

Silver Technical

Short Term:
Silver broke higher and this time it managed to keep its gain. As of the time of writing, silver prices traded above $ 29.22 which is the first key step to trade outside the tight range (see chart below). In our last commentary, we notified our readers of an ascending triangle on the 4 hourly charts and an imminent breakout from the Bollinger band. This break seems to confirm an upside potential in the next few weeks.

Medium Term:
Our current long position on silver sits comfortably in the money. Silver traded above the 20 DMA of $ 29.18 and the stochastic fast line is rising higher. The MACD has also cross higher but remain in the negative zone. We remain caution on this silver trade and will only get more bullish if $ 29.50 is given.

Long silver $ 29.15 to target $ 29.50 - stop loss added at $ 28.85.
Resistance: $ 29.50, $ 29.74 (38.2%), $ 30.19 (50%) Support: $ 28.33, $ 27.93, $ 27.50


Currencies Value Change comment
Euro 1.3024 Euro gained as the US dollar weakens.
AUD 1.0315 AUD could go higher to target 1.0350.
JPY 95.95 Mr Kuroda is expected to launch the money printing programme once he is appointed.
US Index 82.55 US dollar index gave back some of its early gain.

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. 

13 Mar 2013 | Categories: Gold, Silver

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