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Gold & Silver; Warning Signs Ahead!

Bullion Round Up

The official Chinese PMI data declined and came in lower than expected. This further suggests that China’s growth is facing headwinds from the Eurozone recession and sluggish growth in the United States - quote from Reuter’s article. We have seen continuous weakness in the Eurozone with high unemployment and the recent fear of disinflation. Mr. Draghi is under a lot of pressure as he contemplates a possible cut of interest rate. The US did not fare any better as their latest GDP number missed estimates which could well add pressure for the Fed officials to continue their QE programme. The weakness in the US dollar index seems to suggest that the market anticipate that the Fed could add more monetary stimulus. The current economic climate is supportive of higher gold prices in the next few months.

In the short term, Edward Meir of INTL summarised the warning signs ahead in the latest report “We continue to remain somewhat cautious on gold, particularly as it starts to approach the key $1500 mark”. We shared the same view that the upside risk has increased as we approach key resistance level at $ 1486 and beyond that a possible run up to $ 1500 and $ 1522. Fundamentally, the demand for physical gold will remain strong as the global economic recovery are showing sign of a slowdown which could encourage central bankers to maintain an accommodative stance. Technically however, gold price face strong resistance in the current rebound phase (after the selloff in April) and further weakness can be seen ahead.

We have highlighted our concern that continuous outflow of funds from ETF has eroded investors’ confidence in holding paper gold. UBS also added that gold will need time to recover after the selloff. We also highlighted that we could start to see a slowdown in physical demand which has been instrumental in the current rebound. Gold remains in a bear market and typically, it will need time to find a strong base before embarking on a recovery. We maintain our view that upside risk have increased as we draw closer to $ 1500 and $ 1522 area. Potentially, we could see gold price retesting April low at $ 1325 in the next few weeks.

Gold Technical

A weaker than expected ISM manufacturing data as well as a lower than expected ADP nonfarm employment change were not gold supportive. Despite a weaker US dollar index, gold was heavily sold off on May Bank holiday. Singapore and Hong Kong market were close for the day as well as other European countries. Gold started the early trading hours at $ 1477 as the open and ever since then has continued to free fall. We did warn in our previous commentary that a possible slowdown in physical demand could soon weaken gold rebound. In addition, continuous outflow of funds from ETF only increase selling pressure. Investors who are still holding will be wary of a possible margin call again.

One of the biggest worry is that gold could start to break lower and short sellers continue to add pressure. A break below $ 1456 (50% retracement) could easily take gold to a low of $ 1404. However, a break pass $ 1404 will give the bears more control and prices could fall to revisit $ 1325 again.

Resistance: $ 1487, $ 1496, $ 1525 Support: $ 1440, $ 1425, $ 1404, $ 1325

Short Term (1 week) Medium Term (1-3 weeks) Long Term (1-6 months)
Bearish Bearish Bearish

Silver Technical

Silver tumbled on the back of a negative economic data out of China and the US. It took out several short term key support levels at $ 24.04 and $ 23.85 which was the last straw that sent prices to a low of $ 23.26. Several analysts argued that the rebound on silver is complete and the bear flag will continue to show weakness in the next few weeks. A break below $ 22.88 will enable to white metal to retest previous low at $ 21.98 with a potential to go as low as $ 19.00 area. The market remains bearish and this rebound could prove short lived as the speculators are positioning for more price weakness in the next few weeks.

After last Friday rebound, silver may continue to consolidate the recent rise or it could potentially continue on a downward course. We are not sure where the bottom lies but felt that it may retest previous low at $ 22.06.

Resistance: $ 24.82, $ 24.91, $ 25.59 Support: $ 23.26, $ 22.88, $ 19.00

Short Term (1 week) Medium Term (1-3 weeks) Long Term (1-6 months)
Bearish Bearish Bearish

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. 

02 May 2013 | Categories: Gold

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