Bullion Round Up
Over the past few days, we have read several pieces of reports and articles that try to justify the overdone sell off in gold. In addition, the selloff has sparked a buying frenzy at an alarming rate. Jewellers around the world are hammered with unprecedented demand from gold investors that come from various backgrounds. The huge demand came as prices drop and buyers deemed such event as rare and a one-off huge discount to buy the yellow metal. The sentiment is at these prices, you are a fool not to buy and hold for the long term. Such strong demand in the physical market may soon drive higher prices as premiums on gold bars have been raised and there is already a supply constraint. One could then assume that the large short sellers have in fact helped many would-be investors to own a piece of gold at a reasonable price – what a god sent!
However, we are here to analyse what has caused the buying frenzy? From the price point of view, gold above $ 1500 was too expensive for the general public to buy physical bars. One could question why are we not witnessing a higher demand on ETF market during this price fall? ETF is a financial product that was supposed to help investors to join in the market at entry level. Is it because of a growing distrust of owning paper gold? We are still witnessing large outflow of gold backed ETFs and one way of explaining this is that hedge funds and retail investors are leaving ETFs but long term gold investor’s remains steadfast. Therefore, we could argue that hot money is out of the ETF community and possibly move to equities.
Could this be a game changer as physical demand may soon outpace supply and raise concern of the availability on physical gold? Physical gold is coming in short supply and World Gold Council confirmed gold mined has decreased on a year to year basis. The speculators may soon find themselves in deep trouble to unwind their short position if the physical demand persists. Sooner or later, supply and demand equilibrium will put a fair value on gold. Hence, owning physical bars as a long term investment and avoid paper gold is the theme going forward.
Gold face several resistance at $ 1397 and $ 1402.50 (yesterday's high) but once we break past $ 1405, gold could retrace higher to test the 31.8% retracement line at $ 1424 area. Meanwhile, the 4 hourly charts show a tightening Bollinger band that indicates a potential breakout. The stochastic fast line is trading higher while the RSI continue upwards which indicate buying interest. However, the MACD remain weak as it continues to roll in the negative zone.
Supports are at $1377, $ 1369 and $ 1361 but a break below $ 1369 is bearish and we should aim to short the market again. Asian market could be volatile and we advise traders to be extra cautious in their stop loss. The resurgent in physical demand might be able to push prices to retest $1400 area sooner or later.
A rebound is underway after the sharp sell but faced with strong resistance at $ 1424 (31.8%) and $ 1465 (50%) retracement line. Should prices break higher, short sellers will look to add to their position. We felt that the market will resume lower after this rebound to test the previous low before rebuilding a higher price.
Resistance: $ 1424, $ 1456, $ 1487 Support: $ 1371, $ 1366, $ 1325
Silver prices continue to struggle higher. Instead, it was subject to retest the low at $ 22.419 on the back of a poor Asian equities number. The market sentiment did not help silver prices because investors are generally worried of a possible recession. As an industrial metal, a recovery in the global economy favours a higher silver price. Prices remain capped and unable to break resistance at $ 23.66 and $ 23.74. However, a break above $ 24.03 will give enable silver to retrace higher. The prospect of the white metal to rally seems unlikely but a bottom is due. It is impossible to suggest where the bottom will be but staying on the side-line is a better option.
Resistance: $ 28.35, $ 28.87, $ 29.50 Support: $ 22.91, $ 22.00, $ 19.00