Commodities | Oct 11 2012
Gold seems to be trying to find its way. After reaching a high of US1795 there appears to be little follow through for the metal. In addition to this, silver's strength seems to have fallen by the way side as it has little momentum to push it through the important US 35.20 resistance level which we have had for some time. Of note in the market is the concern over economic conditions again and this may have a double whammy on Gold and Silver. Firstly, overall we have been long the “complex” on the back of stimulus programs and hopes that would ignite forms of inflation and on the fact that we would get an up tick in industrial usage (this is mainly for silver). Secondly, we have seen investor support for the metals by way of demand for the physical metal to fill the ETF market. These markets in terms of holdings are reaching record highs.
However, if the economy looks set to weaken further and the economic headwinds persist then the reasons to hold gold become less attractive. The market is long at the moment. As mentioned in previous comments if investor sentiment turns negative for the metal then can we can anticipate another nasty sell-off as people exit the market. In addition to this, if equity markets come under pressure further, which we think they will, then there is a steady stream of sellers from ETF holdings. The more negative equity markets become the more selling in gold we can expect. Obviously the selling will continue up until a point, where it becomes a safe haven play again.
The bullish call we have had for so long does remain in play, however we have decided to scale back our long positions for the time being, until we can see conclusive evidencethat a recovery is under foot.
We have shut down a lot of our long positions opting for the security of the sideline.
Chart point:
The market tested the top end of the chosen ranges from last week, however we are just not getting the anticipated follow through. As such we head for more consolidation in the complex. Silver, after failing to get beyond US35.20 on a daily close, can now suggest a test towards US33.50 maybe even lower. Whilst on gold, if we get a break below US1760 on a daily close we suggest US1735 and possibly even US1675. We have not abandoned the bullish call however, consolidation seems to be the appropriate course of action to take at the moment. Momentum indicators are all bearish.
Gold
Silver
Edited by Jonathan Barratt, Barratt's Bulletin is a weekly subscription newsletter that provides expert analysis of commodity markets, global indices and foreign exchange movements. Click here to take a no obligation 21-day trial to Barratt's or to learn more visit www.barrattsbulletin.com. Content included in this article is not by association necessarily the view of FNArena (see our disclaimer).
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