Technicals | Nov 17 2010
By Chris Shaw
Technical analysts at Barclays Capital have identified some cautionary signals in the precious metals market, the warnings signs applying to both gold and platinum.
While remaining strategically bullish on gold with a target of US$1,485 per ounce into the year-end, the technical analysts have pared back their near-term view to reflect the formation of a bearish divergence signal on the weekly chart last week.
This signal implies a loss of momentum with respect to the recent uptrend and in the view of the analysts suggests increased downside risk in coming weeks. While trend followers will stay bullish as long as prices remain above trend line support at US$1,342 per ounce, the risk is for a correction to a range of US$1,250-$1,300 per ounce before the highs are revisited, report the analysts.
The technical analysts at Barclays are now suggesting lightening short-term long positions in gold on any further rallies.
Similar indicators have emerged with respect to the platinum picture, Barclays again pointing out a bearish engulfing weekly candle was completed last Friday as prices approached Fibonacci resistance at US$1,809 per ounce. Downside risk over the rest of the year has now risen.
The technical analysts also noted evidence of bearish divergence, which implies investors are choosing to lock in profits following recent strong gains. Near-term, the analysts expect price action will remain volatile, with US$1,810-$1,830 per ounce likely to cap prices this month and US$1,649 per ounce likely to act as a downside limit.
While two weeks ago the technical analysts at Barclays were anticipating platinum would play catch up with silver and palladium, they now believe the risk is the metal remains in a range of US$1,600-$1,800 per ounce, so slowing down the other precious metals.
In their latest market update, received this morning, the team at Barclays reports their target for gold is US$1485/oz into the year-end.
In the near term, however, the risk is that a stronger US dollar, coupled with higher US yields, will drive gold into the US$1250/00 area "before the selling stops".
Silver should have strong support between US$24.80/25.00, suggest the report, but if that were to fail, the price could revisit US$22.50 before stabilising.
