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Gold & Silver; Upside price movement capped?

Bullion Round Up

Despite a strong increase in US dollar index, bullion prices reacted positively and made headways to find support before crawling higher. Traders remain cautious as short term gains could easily lose ground to quick profit taking if there are any good economic data. Gold is still trading within a tight range where the bulls and the bears have no total control. It is also reacting rather like a safe haven assets. But currently it is not so appealing to hedge fund managers who are thinking to reduce their gold holdings as they see a receding economic crisis. Not everyone agreed as they argued that gold remain a strong inflation hedge tools.

Economic Round up

Asian shares take its cues from their Western counter-parts as they ended the day in negative territories. Spanish corruption allegations hit market confidence and caused a rise in Spanish bond yield. It was not so different with Italy fiasco that also undermines its credibility. Euro took a tumble which benefited a strong recovery on the US dollar index. The head of Bank of Mexico warned of ‘perfect storm’ for global economy that is addicted to loose monetary policy. He feared that financial markets are being overly optimistic which could lead to mispricing in some asset classes.

Gold Technical

Short Term:
This morning gold traded in a tight range of $ 1675 and weakened to $ 1670 area. The uncertainty in the Eurozone helped short term gold prices to move slightly higher. However, we remain neutral and look to trade according to the direction of the market. Gold price remains stuck as prices coiled into a tighter ascending wedge pattern. Technically, it is setup to rise but bouts of profit taking capped upside movement.

Medium Term: Technically, a breakout on gold prices may come sooner rather than later. A break higher to $ 1685 gives a bullish signal to retest previous high of $ 1697. Should that fail, the bears will be in total control to push it back down to $ 1625. The MACD is rolling flat but stochastic showing more bullish sentiment. It is a matter of time before prices breakout from this potentially bullish pennant.

We look to short the market only if the support at $ 1652 gives way. In the meantime, gold may need to consolidate further and find support before eventually taking out the higher resistance. Look to buy only at $ 1686. Resistance: $ 1686, $ 1697 (previous high), $ 1700, $ 1710 (50% retracement from Oct high) Support: $ 1653, $ 1647 (long term uptrend line), $ 1635, $ 1625

Silver Technical

Short Term:
Silver traded confusingly as traders bought the market to go higher and sell it hard after the short rally - back down to where it all started. Having failed to break lower at $ 31.66, silver prices did a reversal to test yesterday high of $32.12 but failed to get anywhere close to erode the overhead resistance at $ 32.47. It is another day and another setback in the bull camp as prices are still very volatile.

Medium Term: The positive news on silver is that it is still trading above the long term downtrend line at $ 31.66 area followed by other support at $ 31.23 and $ 31.00. In addition, it is trading in an ascending triangle pattern. The stochastic have turned which suggest renewed buying pressure. We maintained our neutral bullish stance on silver and look to target $ 32.47 and then the 2012 - 2013 resistance line at $ 33.29.

Failure to hold at $ 31.60, we will short silver with a stop loss at $ 31.75. However, should prices break above $ 32.00 and maintain that gain then it will be sufficient confirmation that it can target the January high of $ 32.47.
Resistance: $ 32.47 (month high), $ 33.54 (downtrend line), $ 35.35 (October high) Support: $ 31.23 (38.2%), $ 30.60 (200 DMA), $ 29.25 (January low)


Currencies Value Change comment
Euro 1.3538 Continuous allegation on PM Rajoy is eroding confidence. In addition, Spanish bond yield is on the rise. It is also a good excuse for profit taking after a strong rally.
AUD 1.0318 Breaking lower on the back of possible easing policy to curb the high AUD exchange rate.
JPY 93.70 PM Abe insists on hiking wages - no risk of hyperinflation.
US Index 79.71 US dollar index is recovering with higher numbers. Possible safe haven appeal.

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.

06 Feb 2013 | Categories: Gold

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