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Buy The Dip Bullion Potential

May 05, 2011 5:34 AM ET
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Seeking Alpha Analyst Since 2008

The London Forex Broadsheet™ (https://www.thelfb-forex.com/) (commonly known as TheLFB™) was formed by institutional traders and business professionals with a strong desire to give something back to the retail trading community. TheLFB team has over three decades of trade experience in institutional environments. TheLFB team comprises a mixture of analysts and business professionals who have built and worked in trading rooms globally, and have played key roles in developing Fortune 500 companies. The main LFB website is a visual tour-de-force — fun, bright, collegial and uncluttered. There are designated areas which cater to all special interests and needs. Blogging, analysis, economic calendar, trade desk, virtual trade room, daily broadcasts, trade alerts, and an array of features as deep as it is broad.

Sentiment towards bullion positions remains mixed after three sessions of trade that dropped gold from 1576, to hold support just above the 20-day Simple Moving Average at 1505. GLD values are holding above the price channel set in the last two weeks of April, with long mid-term trend reads, and mixed momentum mid-term order flows.

The $70 drop in gold bullion futures contract trade is being attributed to an overbought reaction to the $46 move higher on Apr 29 11. The drop lower is in-line with a reversal in silver trade that looks to have been initiated by overbought technical conditions, and massive margin hikes by the Chicago Mercantile Exchange (CME) for opening and maintaining a silver futures contract.

The CME has initiated its 5th margin hike in 8 days, which translate into an initial silver margin requirement of $21,600, which is 11% of the contract value, while the maintenance is going to cost $16,000. At these margin levels it is no wonder that traders are moving towards forex as a vehicle to replicate the bullion moves, at far less margin cost, and with 24-hours a day access to a highly liquid market. Equity, bullion, and oil signals and alerts will normally have a forex alternative that will replicate the moves.

The Apr 29 11 Silver signal sent to clients, short from 47.50, has hit its two main targets and is now consolidating just above the 50-day SMA area at 38.70. There are no new SLV (ETF) signals forming, and patience is now required as fair value is found. Alerts will be sent directly to clients as price action builds.

TheLFB Silver Futures 1-Hour Chart

There have not been many times this year that bullion markets have failed to get bought on the dip, and as the chart detail above shows, the downside targets will be 36.95 and 35.00 if silver breaks lower.

The long trend and oversold near-term SLV and GLD (ETF) charts are signaling that support may be in place. Alerts will be sent directly to clients as things evolve.

Existing long bullion positions will likely be held, while newly-formed short positions will run the gauntlet of volatile trade over the next 24 hours. The next sustainable mid-term will be dominated the equity and Treasury market reactions to Friday’s Non-farm Payroll report from the US.

TheLFB Gold Futures 1-Hour Chart

There were major buyers in at 1490 on gold during April trade, which is a major potential swing point area. Downside moves through 1490 draw in a test of 1484 and 1464, but as noted above, a new short signal has not yet been confirmed.

Caution is required in expecting a collapse in GLD and SLV values; there has been massive market-wide interest in building the bullish trend, and it will take a lot more than three days of selling ahead of a major news release to reverse the trend.

TheLFB client note updates for near-term moves lower have completed the first leg and positions should be cleared. TheLFB Subscribers will be notified the moment that price action breaks.

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