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SHARPS PIXLEY Gold lacklustre awaits FOMC statement

PM Abe continued on his relentless assault on the BOJ and today he repeats his request for the bank to act on the 2% inflation target. In addition, he mentioned that the fiscal spending will not be forever and that once growth and inflation is attained then raising taxes will be viable.

Meanwhile, bond traders are worried that the Fed may cut short QE program as early as the end of 2013 which could indicate a possible rise in interest rate to curb potential rise in inflation. This argument is based on the latest media frenzy that the US economy is on the road to recovery. Such argument is also boosted by a better economic data from the Euro zone as well as verbal confirmation from European leaders that they are out of the crisis. In addition, China better than expected GDP numbers lend a hand to the current optimistic equities market. However, is this optimism a sustainable one?
Expect a volatile trading week as we host several key data such as ADP non-farm change, FOMC statement and US unemployment rate.


Short Term: Gold opened this morning with a positive note after founding support and retested $ 1665.00. Prices remained unchanged for most part of the Asian trading hours but as London opens, prices start to break lower and tested support at $ 1652.10. Our last commentary mentioned that support is close to 61.8% retracement line that we plotted at $ 1653.00. The lack of physical buying is one of the reasons but traders are also being cautious and most stayed on the side lines - awaiting the FOMC statement. We are on the side lines for now and look to buy in the dip should gold price break below $ 1650.00.

Medium Term: We see a potential Head and Shoulder pattern emerging on the US dollars. If the neckline is broken, the dollar could weaken further and this could benefit gold. The US debt ceiling has been raised for a limited amount of time (through to 18th May) and sooner or later more negotiations may lead to market uncertainty. Ratings agencies such as Fitch has already warned that should the automatic tax cut is activated, the US economy could face recession. In addition, we are in a possible midst of a currency war that could further devalue paper money. Smart investors will have to build a decent portfolio to hedge against inflation and potential currency debasement.

We are at best neutral negative on gold and look to only buy in a dip. Today low volume trading suggested that many traders are on the side lines and take cue after the FOMC statement is out. In the last statement, some FOMC members expressed their desire to claw back the QE continuous buying programme. Gold prices took a dive after that remark and V spike up on the daily chart.
Resistance: $ 1695, $ 1696, $ 1697 (previous high), $ 1700, $ 1710 (50% retracement from Oct high) Support: $ 1653, $ 1635, $ 1625


Short Term: Silver failed to hold on several key supports and could potentially target a triangle bottom. After finding support at $ 30.74, silver prices reclaimed the $ 31.00 area this morning and tested $ 31.19 before selling pressure pushed it down to consolidate further. It failed to hold on to the downtrend line at $ 31.50 then the 38.2% retracement line at $ 31.23 which suggest further weakness in the short run. Silver dipped lower after a much better US durable goods data and found support at $ 30.74. Given that silver is acting like a safe haven rather than acting positively to better economic data from the US, we would suggest caution.

Medium Term: There are potentially 2 scenarios that is plausible - depending on the economy, US dollar as well as gold prices. Silver prices could find support at the 61.8% retracement line at $ 30.47 and found some buying interest. It could potentially lead to a bullish rally to test the downtrend line at $ 33.00 on the daily chart.
The other scenario we envisaged is where silver prices failed to hold on to $ $ 30.47 and break lower to test January low of $ 29.25. Should prices reacted bearishly, it may not bode well in the interest of long term investors who seek an alternative to gold investment.

We would like to short the market should $ 30.70 gives way and target the 61.8% retracement at $ 30.48
Resistance: $ 31.23, $ 32.47 (month high), $ 33.54 (downtrend line), $ 35.35 (October high) Support: $ 30.62 (200 DMA), $ 29.25 (January low)


Currencies Value Change comment
Euro 1.3448 The Euro put up a positive day and reached a high of 1.3393 on the back of more upbeat views of the Eurozone. We have a positive German PMI numbers that propels the market higher.
AUD 1.0413 AUD failed to hold the 1.045 area and now looking for support.
JPY 90.67 It does not come as a surprise after a dismal export figures. In addition, there were more remarks by PM Abe insisting BOJ to fight deflation head on. Expect JPY at 90.00 - 95.00 in the next few months.
US Index 79.81 A constant risk of H and S formation forming but should that pattern fail then a stronger dollar to be expected.

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.

29 Jan 2013 | Categories: Gold, US

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