Commodities | Apr 12 2012
We have been nervous about our long precious metal positions from last week and even dropped some of the silver position as a safe guard. The price action for the gold has been mixed, however we expect to get some clarity over the coming week which should result in higher prices. Most of the fundamental news appears to be on the back of physical demand for the metal, which is seeing dips well supported. This is a theme we have been running with for some time: that supply will not be able to keep up with demand.
We have already mentioned that access to the gold market via ETPs [exchange-traded products] is soaking up any production surplus, however In India we are fast approaching the start of the festive seasons which dictate the giving of gifts (gold). They commence on the 24 April and as a result we tend to see prices pick up. This year it is slightly different, as we have seen a strike by jewelers for the last three weeks protesting about the doubling of the of import tax from 2% to 4% and the introduction of an excise tax of 1% for unbranded gold jewelry. The increase in demand for physical will provide a good footing for prices and if the orders at US1620 for physical are anything to go buy, we can see excellent support on dips. India is the largest consumer of physical metal for jewelry.
We continue to have positions in both gold and silver and look forward to higher levels. Dips back to US1640 look to be well supported. We could be tempted into taking on a further long position if US 1662 is broken (stop goes in on the low of the day of break if following this recommendation)
Chart point:
Although we had a dip to US 1612, the market has bounced back to US 1660. The velocity of the bounce suggests a low of some significance is in place. Daily momentum indicators have responded well to the bounce with signs of divergence indicating a push higher is on the cards. This is why we are happy to buy the break to the topside. The market looks set to test the 200-day moving average, which currently stands at US 1694.
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