Precious Metal Weekly: Game Changer

We started the week with 4 potential trade plans/scenarios Pre FOMC:

• Hike once and another later before end of 2015 (US Dollar higher / stocks down / gold down)
• Hike once but dovish remark (dollar higher but then fail / stocks fell but rose / gold down then up)
• No hike but hawkish remark (dollar fell off the bed but could recover later / stocks up then down / gold up)
• No hike and extra dovish ( dollar fell off the bed / stocks up and higher / gold up)

Scenario no 3 played out and now we are to assess what is in store given that the next Fed meetings will be China dependant. Has the Fed chosen the right path with no rate hike? Surprisingly, the answer is yes if we are to list down all our previous arguments. We argued the possibility that during her tenure, Janet Yellen could even consider relaunching QE (although this is increasing unlikely).

In addition, our concern about oversupply and large amount of slack in production continue to add pressure. Over the last 7 years, recovery was through the use of hot money and lack of economic reforms. Kicking the can down has its use but its effect is soon wearing off.

Veering away from the obvious argument, the next 2 weeks will be crucial as the global market look to adjust its view and projection. Given the FOMC testimony that the US is doing fine but remain cautious due to global uncertainty has only added fear and not confidence. As per our last weekly report, what the market desperately need is a steady footing and show of confidence that the global recovery is underway – and not in a rut where it needs extra time and zero interest rate to buffer itself.

The adverse effect it produce is a market that needs more soothing and we mentioned previously that Global central banks officials are already busy pumping in the idea of more stimulus. China will need to show that it can produce that 7% economic growth that the rest of the world depends on.

“A likely scenario is for a rate hike but what about the case of no rate hike as Yellen stress concern over the global economic health? Well one thing for sure – the equity market will not like it at all – recent dovish remark from central banks has not ended very well – except it has a short term effect followed by a big sell off. Typical bear market rally that trapped as much buyers before it continued lower. No rate hike will also left many within the business sphere to guess when they can make certain investments. Consequently, if the Fed does not hike the interest rate when will they do it then?”

We are here to admit that we were wrong about the imminent rate hike and with that in mind, our outlook has somewhat changed to neutral. Although we suggested that a rate hike was appropriate – our argument remain steadfast that if it is not September then when? Most importantly what are the key elements it need to see in order to hike a mere 0.25%? Maybe the Federal Reserve would like to see a strong equity market, strong employment data and a tiny bit of inflation – barring China or Greece effect?

Or is there no real intention to ever hike in 2015 and they have in fact missed it? Looking at future growth numbers out of China is certainly not encouraging to start with – unless we see a big pick up in commodity prices and on the assumption that employment remain buoyant (with a hint of wage growth).

Taking all the considered known and unknowns, volatility will remain for the next few weeks – adding fresh pressure for some sort of results that market confidence is back. We expect a hard and difficult ride in the equity market which will find its footing for some sort of Santa Rally come what may. Commodity prices will pick up slowly while dollar will remain strong as long as the rate hike scenario is on the table.

Market Realist – seems to suggest that 2016 see a big shift in economic growth (though we have to question if Brazil may never reached such numbers)

Dollar Technical Outlook

Confirmation of no rate hike send the dollar lower and the selling did not stop until Friday where the index found support on the daily 200 ma and 76.4% fib retracement. Other time frames suggest that this low will be retested again and failure to hold opens up the possibility of heading to lower number. Otherwise, a period of consolidation is expected but we also envisaged that as long as the low is respected then we expect another strong dollar recovery. Is this sustainable? Given that the rate hike option in on the table then yes, dollar strength could well remain but any negative news out of China may well continue this yo-yo fest.

We envisaged a much lower dollar for the next week or so – but the run up to the “Rocktober” Fed meeting will certainly give the bulls the fire power it much needed for retest higher.

“No Rate Hike – a run for the exit as the dollar index lose appeal – retest of the lower trend line within the ascending triangle”

Gold Technical Outlook

Watch how the weekly moving averages are always respected by price action. With no rate hike we expect the yellow metal to play out higher in the short term. Our projection is that we see higher prices in gold until end of September – potentially hitting the high at 1155 – 1180 levels before it settles lower as we enter October.

Silver Technical Outlook

In the short term, a pullback remains a buy for Silver but we want to highlight that there is a potential for a move lower after such a spiked higher. Impulsive move higher often depict an impulsive sell off as well. A pullback to retest the 20 daily ma is in the cards and with the opening of trading, we are placing a short with tight stop to test last Friday ominous doji.

“…we cannot rule out a potential bear flag that is forming on the daily chart. Despite that, the current price action looks rather like an accumulation phase before price explodes higher.”

Platinum Technical Outlook

Platinum continue to play out the fractal we pointed out and seasonality is also at play here – price did retest low at 948 (we envisaged lower as per below Italics). The trend is your friend and the medium to long term view remains lower.

In the short term, we see a potential double bottom forming and we cannot rule out that this could well be the low of the year for Platinum to embark in higher prices. Fundamental should help ease the sell off – with inflation running so low – commodity prices are due to bounce and at such discounted price one can only wonder if this bargain prices may last.

“If fractal serves us right, we may see a retest of 940 levels before a decent bounce again – thus a retest of key support level must hold. Should support hold, then platinum could target the weekly 20 ma at 1050 levels.”

Palladium Technical Outlook

Weekly RSI is encouraging, palladium may have found the low for 2015 – thus we cannot rule out for higher prices in the short term. As previous price action has shown, this low will be retested to build layers of support before it can embark on another move higher. However, projection of lower economic growth may continue to dampen higher prices and the last few years inflated prices may well be over.

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