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Cheap Gold and Silver prices – the deal of a lifetime?

20 Jul

Eerily, perhaps the worst precious metals market sentiment currently exists that has been observed since the early 1970’s.

mcx gold silverThe gold and silver markets have fallen dramatically in the wake of the FOMC signaling an end to its controversial Quantitative Easing or QE programs. The pricing in of such FedspeakQE taper-talk has also triggered a yield spike in southern Europe that could deepen that region’s existing debt crisis.

Furthermore, sharply rising interest rates have resulted as billions of investors exit perhaps the largest financial bubble ever seen. The end of cheap real estate refinance has finally arrived as mortgage rates are now approaching five percent.

Rising government bond rates mean more money that will increase the chances of stealth inflation. The Fed acting to crush the effects of inflation may even lead to more money printing.

Other background factors

In addition, rising oil prices have been cutting in to already lofty equity valuations, as fallout from the “Black Swan” in the Gulf of Mexico expands. Gasoline prices are already rising.

The public has also been caught largely off guard by embroiling social unrest in various parts of the world. This dissatisfaction is indirectly the result of exporting inflation that is collateral damage from currency depreciation wars.

A dead precious metals mining sector has been cutting off any “perceptual” idea of supply as paper metal prices are now well below the cost of production. New supply matters little for gold. For silver, by the time the sector catches up with demand, there will be no silver left.

Precious metal prices suffer despite bullish fundamentals

Offset by an unprecedented and record breaking surge in physical demand for silver, from silver coins to international demand. Yet, eerily, perhaps the worst precious metals market sentiment currently exists that has been observed since the early 1970’s.

Bullion banks are currently long buyers by every indication, yet they are still maintaining a concentrated short position in the futures market. This could be an intentional effort to suppress physical metal prices by selling paper so that they can accumulate real metal more cheaply.

In short, it is unfathomable how low the precious metals markets are by any measure. Technically, the market could still go lower, but does this change the likelihood that investors have now been presented with what seems to be the precious metal buying opportunity of perhaps multiple lifetimes?

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Gold charts point to fresh trouble, eyes on $1100/oz

22 May

Gold’s recent slump could have much further to run, with a breach of its April low at USD 1,322 potentially setting up bigger losses towards levels not seen since mid-2010, chart analysts say.

Since posting its biggest two-day loss in 30 years last month, bullion has struggled to recover, and last week suffered its longest string of daily losses in four years.

With April’s low again looming, a breach could spark a significant move lower, according to analysts who study past price moves to determine the future direction of trade.

“If that gives way, it will attract fresh selling pressure. That impetus could see it break below USD 1,304 and down towards the USD 1,161 area,” UBS technical strategist Richard Adcock said.

“It’s a break of that point that would pressure longs further, triggering more selling pressure as we start to see long-term longs close down, and people initiating short positions again.”

Commerzbank neutralised its previously negative one-month forecast after the market staged a bounce of more than 2 percent on Monday, adding that more short-term gains may be seen.

But Commerzbank analyst Axel Rudolph said the overall picture remains negative as long as gold remains below resistance around USD 1,500-1,532.20.

“This is not over yet,” he said.

April’s prices slump came as a stock market rally prompted investors to switch out of gold investments such as bullion-backed exchange-traded funds, and as speculation grew that the Federal Reserve may rein in its gold-friendly monetary easing measures.

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It was exacerbated by a breach of one of gold’s most important chart levels, the USD 1,521 December 2011 low.

Prices rebounded as buyers of gold bars, coins and jewellery stepped in to take advantage of lower prices, but that petered out below $1,490 an ounce.

“The rally stopped just shy of $1,500 and didn’t break back above that $1,522 area,” said Gerry Celaya, a technical analyst at Redtower Research. “That’s pretty important from a trading point of view in terms of underlining the bearish sentiment.”

VULNERABILITY

Gold prices are now in bear market territory after falling more than 20 percent from their September 2011 record, and are down more than 18 percent on the year. If gold closes the year below $1,675, it will record its first yearly loss since 2000.

While April’s fall broke gold out of its sideways trend of the previous 18 months, it has not fully negated its longer-term uptrend, which took prices from $250 an ounce in 2001 to 2011’s record high at $1,920.30.

“The past 12-year (underlying) uptrend structure is probably still intact,” Cliff Green, of the independent Cliff Green Consultancy, told the Reuters Global Gold Forum this week.

“I have two major trend lines from that sort of timeframe – the first sits around $1,100. A break of that would set up a test of the flatter one in and around $800.”

Immediate support below $1,322 is seen in the $1,301-1,308 area, the location of 2011’s low and the 50 percent retracement of gold’s rally to 2011’s record high at $1,920.30 an ounce from its 2008 low.

But gold’s grind lower over recent months is an indicator of its vulnerability.

UBS’ Adcock said that on a monthly basis gold’s MACD (moving average divergence-convergence) indicator is now below its zero line for the first time since about December 2001, potentially reflecting a much more significant longer-term bearish trend.

“You could argue that the market is now trading in a bearish pattern of lower highs and lower lows,” Adcock said.

“Couple that with the long-term monthly MACD level, and that is further evidence that the market is now trading in a bearish trend, that the longer term uptrend is ending, and that we are entering into a longer-term bearish theme.”

Commodity Source