SHARPS PIXLEY - Why is Gold at a cross road while Silver is outperforming?
The US House of Representatives voted 234 - 190 to sign off the 3 month suspension of the $ 16.4 trillion federal borrowing limit. The bill will suspend the debt ceiling until 19th May and allow Treasury to continue borrowing to pay bills. Once the “suspension” period runs out, the borrowing limit will automatically adjust to reflect the country’s increased debt level. We identified this as gold positive and should benefit bullion prices in general.
On the other side of the continent, policymakers in Europe are slightly concerned about the current devaluation of JPY. Japan may have kick started a currency war which might attract other central bankers to join in. We also see the deteriorating Spanish Q4 GDP year over year since 2009 - coupled with house prices, manufacturing and retail sales all at depression levels. In addition, IMF cuts global growth and envisaged European recession for 2013.
Short Term: In the late European trading hours (after the IMF
report), the US dollar (safe haven appeal) kicked in and weakened
gold to retest $ 1683.75 levels. As mentioned in our last commentary, we are concerned about gold ability to cross
its previous high of $ 1697. At the moment, we remain neutral bullish
on the gold price since it is still consolidating between $ 1686 and
$ 1696 areas.
Medium Term: Our concern remains focused on gold and if it would fail to break the 1700 level. Prices did find support at $ 1684 which is the long term uptrend line and retraced higher after the IMF bleak report on growth. Further supports are available at $ 1673 and $ 1666 (breakout price). Failure to hold on to $ 1666 could indicate the continuous down trend and prices may retest January low at $ 1625.
At the moment, gold is in sideways
trading but has the potential to break its previous high at $
1697. We will place a buy stop at $ 1697 and stop loss at $ 1684
to go long on this trade.
Resistance: $ 1697 (previous high), $ 1700, $ 1710 (50% retracement from Oct high) Support: $ 1684 (uptrend line), $ 1673, $ 1666 (breakout)
Short Term: We witnessed silvers prices moving higher and breached its previous high of $ 32.37 to $ 32.47 as the new high for the month. As mentioned in our last article (please place old link), there were buying interest and one of the positive news is from the sale of silver between HSBC and KGHM at an estimated $ 876 million dollars. Analysts polled by Reuters expect silver to rise in 2013. Demand comes in the form of silver backed ETF’s and also coins and bars. The weaker gold / silver ratio also favours silvers against gold in general.
At the moment, we are happy with silvers performance and remain neutral bullish as the buying momentum continues. As long as the buying interest is strong, we maintain to add in our previous go-long position at $ 31.60 and place a breakeven stop at $ 32.05.
Medium Term: After reaching the January high, silvers prices dipped back to $ 32.09 on the back of the IMF report and also due to renewed dollar strength. This showcase a strong support on silvers prices because it quickly recovered to $ 32.30 area. The current silvers prices have the ability to sustain its gain and pared those losses. We are facing the next trance of resistance at $ 32.47 areas and targeting $ 33.54. At the moment, we are still bullish unless silver turns back below $ 31.00.
We will put a breakeven stop at $
32.05 to protect our profit and look to add our position should
prices dip back to $ 32.10 area.
Resistance: $ 32.47 (month high), $ 33.54 (downtrend line), $ 35.35 (October high) Support: $ 31.74 (uptrend line), $ 31.50, $ 29.25 (January low)
|Euro||1.304||Slightly weaker - could see more downside pressure building up.|
|AUD||1.0542||Australian dollar seems to hold up well. This year we could see currency diversification (at least from Japanese investors)|
|JPY||88.52||Buy the rumour and sell the fact.|
|US Index||79.97||The strong US dollar put a brake on gold and silver rally. Remain steadfast at this level. We would like to remind you the possibility of Head and Shoulder forming and the neckline at or close to 79.00 / 78.88|
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Sharps Pixley, London