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Gold & Silver; Where is the demand?

Bullion Round Up

A slower than expected Chinese PMI numbers added more selling pressure on Silver. The industrial metal depends heavily on a better set of economic data to determine a higher demand. Meanwhile, Gold retested $ 1433 before giving back all its gain in the early Asian trading hours. The recent price rally was sustained by a strong physical demand as well as short covering rather than any real buying interest. This argument is further supported by the continuous outflow of gold backed ETFs. Reuters reported that the holdings on SPDR gold trust fell 1.63% to 1104.71 tonnes from the previous standing of 1123.06 tonnes. We have highlighted in our previous commentary the distortion between the strong physical demands against those on the outflow of money in ETFs. A probable explanation regarding the distortion is the growing distrust of ETF among long term investors who may have opted for physical product.

The battle between the bulls and bears continue to intensify. Gold bulls have retreated after the sharp selloff but bargain hunting at the low price has lifted the oversold market above the 38.2% Fibonacci retracement line. Prices have been consolidating after hitting a high of $ 1439. Meanwhile, the gold bear’s objective is to add selling pressure in an attempt to drag the price below $ 1400.00. After the recent selloff, the market is poised to break lower and technically, it continues to thread in a bear market. The recent rally is more of a short covering by the sellers and possibly relief long term investors to cut their previous holdings or initiate a new short position.

Gold Technical

After a disappointing Chinese PMI numbers, gold headed lower and has been trading in a downtrend (see chart below). Prices did not manage to retest previous high at $ 1439; instead it only managed $ 1433 and went lower. There was a brief moment where gold retested the upper range of the downtrend before selling pressure took it lower. Technically, gold has retested the 38.2% Fibonacci retracement line and it may have had a good run. In many of our last commentaries, we have cautioned that prices may break higher but the market will resume lower after this rebound. At the moment, we are in the midst of this tight range and a break below $ 1404 will give the sellers more ammunition to push it lower.

The current support now stands at $ 1394, $ 1380 and $ 1366 with resistance sitting firmly at $ 1421 and $ 1433. Only a break above $ 1440 will give gold a good chance to retest $ 1456 and $ 1487 area. We felt that gold could go lower on this basis unless physical demand managed to sustain the current selling pressure.

Resistance: $ 1424, $ 1456, $ 1487 Support: $ 1398, $ 1371, $ 1366, $ 1325

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

Silver Technical

The worse than expected Chinese PMI data sent silver prices lower and it found support at $ 22.64 but put in a negative close. In our previous commentary, we warned - There is a lack of buying momentum to push the white metal higher. It is still consolidating after the major sell off but the lack of interest from new money may hinder any real progress. Given the recent weakness, we fear that silver could go much lower in search for a good support. We are not sure where the bottom lies but felt that it may retest previous low at $ 22.06.

Resistance: $ 24.22, $ 24.91, $ 25.59 Support: $ 22.65, $ 22.00, $ 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. 

24 Apr 2013 | Categories: Gold

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