The German team are increasingly concerned the recent spike up in gold prices has been over done.
Technically the metals are over bought and approaching some key resistance zones. Gold short term could extend to 1791 and even to 1803 but this area should provoke profit taking and short sellers to emerge. Gold is over extended on a short and medium term basis so the team have down scaled their medium term outlook in view of this to neutral. They do acknowledge that should the 1803 level be passed the door would in theory be open to the 1900 area though they see this scenario as highly unlikely.
Price action wise we hit 1786 on Friday’s futures session coming very close to their resistance levels. This area was rejected immediately with a bearish hammer technical pattern produced on the day indicating the area will be defended. Having said this almost all asset markets suffered a similar fate on Friday so I wouldn’t read too much into this reversal day at this stage.
Silver is likely to be capped at 35.7. A pull back to the 31.9 area is the most likely event according to the team. And due to the over bought conditions they have shifted their medium term to neutral.
The gold and silver miners did not sell off on Friday and continue to look very strong accepting that near term they remain overbought.
Keeping track of the German team’s performance they missed this rally entirely. They have shifted again their medium term view to neutral having been bullish medium term for one week only. They have kept their short term bearish forecast. To date they are struggling so we see how price develops here to see if they can improve on their recent under performance.
Macro wise, the picture remains very positive for the precious metals. Let me keep briefly run through some of the news flow in the last few weeks as monetary and fiscal stimulus has continued in fact for a third week across the world.
This week saw the Bank of Japan provide fresh monetary stimulus to the tune of $120bn monetizing her debts. The Indian government provided a significant set of fiscal stimulus measures and the Bank of India also lowered reserve requirements for her banks encouraging credit growth.
Brazil joined the move on the 16th of Sept by lowering bank reserve ratios to encourage credit growth. Alongside the move by Brazil the president gave a speech criticizing the banks for over charging for new loans. Rousseff said, in a nationally televised address to commemorate Brazil’s Independence Day.
“Because banks, financial institutions and especially credit cards can reduce still further the interest rates they charge final consumers, lowering to civilized levels their earnings.”
Brazilian authorities strongly desire credit growth. They are using a carrot and stick approach. The carrot is the lowering of bank reserve ratios. The stick is an implicit threat that if the banks don’t lend the government will step in to legislate for more loans and monitoring of loan rates.
Also in the week, when the WTI futures got back over the $100, the Saudi’s (with Kuwait and the UAE) immediately provided their own global stimulus by pledging to increasing production by up to 2m bpd if their customer’s required. This news collapsed the WTI oil price by nearly 10% in a few days of the news. This is reflationary in terms of growth for the world economy though for the precious metals is possibly a bearish event short term.
Counter this global trend the Russian Central bank actually increased interest rates by 25 basis points in a surprise move. The Russian economy continues to perform very strongly and they are experiencing some inflation.
The Bank of England released her rate setting committee minutes which referred to more QE to be needed shortly.
The week before the FED announced her “unlimited”, MBS, QE3 program. And the week before this the ECB announced their own “unlimited” (though, in theory, sterilized) bond buying program. China is the large unknown in this sequence of events. Wen Jiabao announced new stimulus programs of $158bn on the 12th of Sept but half of this program was already committed to in prior announcements. Of the large players China is currently behind the curve in her stimulus programs but more is expected shortly.
The continued theme of trying to manage inflation with some inflation good and some inflation bad continues. Governments and their central banks continue to micro manage this nominal ‘recovery’. This ‘management’ continues to be very positive for the precious metals. The precious metal year long down trends have been broken. They are over bought but this appears a buy the dips scenario to me. I’m over weight the sector and would add tactically on a pull back. Macro and technical events point to a strong medium and long term view in my opinion.
Here the report:
Luck to all
Rich
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