Daily Client Note
Gold and Silver Bullion Review
Inter-bank Liquidity Dries Up; Buy Bullion
Southern Europe’s debt is once again absorbing pressure, with Greek 2-year government notes now over 30%. There is a credit and liquidity issue building that will allow bullion markets to more easily hold support if equity risk continues to be sold.
When valued in Euros, gold trades at over €1,080 an ounce today, which at a mere 8% 12-month increase is nowhere close to the bubble criteria that main street media often talk about. It would seem that as the inter-bank liquidity dries up (remember pre-Lehman Bros. collapse signals that the trade team highlighted?), the move to bullion will allow all tests of support to be bought.
The only thing inflated at this time is central banker egos and the value of paper-back currencies. The trade desk note that gold was signaling heavy buy signals from 907.00 in January 2009 now look to be just the pre-cursor to what may come. This can be observed in the moves by central banks to move risk/asset ratios more in-line with bullion, and less exposed to the ravages of paper; moves which were highlighted 18 months ago to clients as being underway.
Central banks have purchased 129 metric tons of gold bullion this year, exceeding last year’s total of 90 tons. This is over a 40% increase in demand when compared with the first four months of 2010, and is just another reason why our trade desk is looking for the market to buy the dips on gold..
Gold and silver trade has a neutral mid-term momentum read. The 4-hour trends are flattening out, which sets up a buy the dip play from the next test of 1520 on gold and 34.50 on silver trades. The last 12 months of gold and silver trade have shown a strong tendency to find buyers at support.
The potential for trade signals to form today is mixed as the week unwinds, as volatile periods of trade continue to hit the bullion markets in 30-minute explosions of price action that then consolidate. Moves higher through resistance are struggling to hold for more than one trading session at a time, and it will be the dips to support that offer the best trading potential. With equity momentum looking like it will transpose itself into USD mid-term buying, moves higher in gold and silver trade will continue to be choppy and overlapping.
Gold Bullion 4 Hour Chart: Trading in a tight sideways range. Swing point high of April 2011. 50-day SMA at 1510 support. Trend-line support also at 1510. No long trade until a weekly chart can close above 1555.
ABC Up potential: A leg higher from 1415 to 1575. B leg lower to test 1470. C leg has potential 1630 target
Patience is key: Wait for a weekly chart close above 1545, or below 1505 before getting involved too heavily
Bullion Price Action:
Strong buying activity was seen at 1490 on gold, and at 33.00 on silver in April and May. These swing point areas will be closely monitored, as it does seem that they are allowing a strong base to form.
Main gold support: 1470. Main gold resistance: 1550.
Main silver support: 34.00. Main silver resistance: 39.50.
Daily trading range is $24 on gold and $2.50 on silver, which are above the historical norm and indicate that speculative interest is still high, and dips will likely continue to be bought.
ETF Price Action:
Strong buying activity was seen at 144.50 on GLD (148.70) in April, and at 32.50 on SLV (34.50) in March. These swing point areas will be closely monitored and market alerts sent to subscribers if they break. It does seem as though a gap lower in SLV will be seen at the Wall Street open, which will be supported by silver bullion now holding support in the European session.
Main GLD support: 144.00. Main GLD resistance: 151.50.
Main SLV support: 33.00. Main SLV resistance: 38.50.
20-day Simple Moving Average (NYSE:SMA) on gold is at 1530. The 100-day SMA on silver is at 36.40. Gold bullion has a 12-month 90% correlation to the euro (Eur/Usd) currency pair.
Bullion signals have been few and far between recently. A long-term buy signal will form if gold closes the week above 1555, which could be sustainable if global equity and risk markets reverse a recent bout of negative sentiment. Silver has not shown any desire to move to far in either direction; fair value looks to have been found above 34.00.
Sentiment and outlook towards bullion trade remains mixed after a period of consolidation. Price action favors standing aside in the near term and monitoring the level of participation as support is tested. Traders committing to bullion trades at these levels need to use caution in trade size levels, as resistance tests will create some volatility. Signals will be sent to clients as sustainable movement is seen.
Alternate 24-Hour Trade:
Investors who do not want to wait for their regional cash market to open, or do not have 24-hour access to the market they have open positions in, are able to access the 24-hour currency market. There is potential to analyze and trade currencies in a high-volume market that is supported by the global inter-bank system.
Investors can trade currencies in-line with a rising global market, or trade ahead of a falling cash market open. Being able to use currencies offers the opportunity to be in a trade before the regional market opens.
Traders could trade the currency pair AUD/USD in-line with the potential seen in bullion trade. Buying the US dollar and selling the Australian dollar on days of equity and bullion weakness is a simple process of placing a sell order on AUD/USD. The position can be managed in a similar way that equity-based trades would be bought and sold.
Full detail of any trade signals that form will be emailed directly to clients.
Daily Client Note