Precious Metal: Plunge Protection Team At Work?

Ironically, terror attack brought a quick drop and massive rally across global equity market (Plunge Protection Team at work?)

• VIX index plummet and crushed despite additional threats
• Escalation of Syria, Russia and US – South China seas US and China spats
• CFTC currency report shows increase in short positions except NZD against USD
• UK recent economic data suggest rate hike could be delay for 2016
• FOMC foot soldier (speakers) argued December rate hike is imminent
• China additional stimulus added over last weekend could well support growth till end of year
• US dollar index remain rather stable though end of the week saw some interest from sellers
• Japan back in recession mode – but BOJ offer no plans for QE expansion (at least not in 2015)
• ECB Draghi re-affirm the need for December meeting to commit the need for more QE
• Baltic Dry Freight index collapse to all-time record lows (Christmas order?)

Last Week:

This Week:

VIX has amazingly been crushed over the last week despite terror attack that took place around Europe and Africa.

Next week host several key economic data but the general market mood seems to front run additional QE from the ECB. Data that may affect market such as US existing home sales, consumer confidence, core durable good order, New home sales and a much shorter week with thanksgiving day could send volatile pricing at the start of the week. Month end book squaring will be at play – traders should be cautious with low volume trading.

Dollar Technical Outlook

Very well supported dollar Index – bulls remain in control and technically there are room for more upside. Fundamentally, additional QE from the ECB will give dollar a lift though we sense that a top is close for a rather sizeable pullback in the dollar post ECB and FOMC. It will be a while then for a good enough reason to be long dollar posts the above 2 risk events. A blow off top type of formation will be the signal for such a move.

“With the overextended price action, the most logical trade is to fade the current strength. As the dollar index breached above its upper Bollinger band, it is sensible that profit taking will take place and we witnessed that last week. Technically, we could see a deeper pullback if price broke below the key support (what was strong resistance) but if we get any risk off sentiment and stronger Euro, dollar weakness may continue. However, given that we are 2 weeks away from a potentially more QE from the ECB – dips remain to be a buying opportunity.”

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Gold Technical Outlook

Now it is all about timing for a potential new low on gold for 2015. This new low is going to an important level and could well coincide post ECB and FOMC meetings. Dollar bulls may not have a strong fundamental reason for holding dollar at such a high price then. An end of year short covering bounce in gold could well repeat if the fractal from 14 and 15 is to play out. The risk reward has shifted in favour of going long even when sellers remain in control. We envisaged a dump and pump scenario leaving a long wick into the year end.

“Weakness continues throughout last week as gold try to consolidate around 2015 low. Potentially a double bottom may be in store for a small bounce next week but we favour sellers to continue selling on any bounce. The outlook on gold remains weak and there is no fundamental reason to hold the yellow metal except for a possible spike in VIX. Any equity sell off may see a sliver of hope for gold to test higher in the short term. Additional QE from the ECB may help lift it but FOMC rate hike will dominate.”

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Silver Technical Outlook

The triple bottom is still much alive but last week price action indicate a very weak bounce even after series of selling. However, it is clear that the extreme bearishness seems to suggest a potential bottoming phase and if seasonality is at play – silver could well have a large flush before a decent rebound. Taking a trade pre ECB and FOMC meeting only invite stop loss to be hit and the price action of the white metal is very much erratic to say the least. We will monitor for now.

“The October rally has ended and all the gains made are lost as succession of selling continues. Silver is back to test key support and September low with a potential triple bottom formation. This argument remains slim and a breach below opens the doorway for a new low. With lack of real economic growth and fundamentally too many long contracts – silver may need to flush lower in the coming weeks. We continue with a sell on any rallies and will use 20 wma as our guide.”

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Platinum Technical Outlook

Very much oversold but sellers remain in control even though we expect a short lived bounce. It will take more than a technical improvement from the chart but also fundamental improvement. We earmarked that platinum has rooms to break lower but any more extreme selling may well see a big rebound in the short term.

“We have closed one of the short positions to lock in some profit whilst leaving the other one to run and moved stops lower. Once Platinum hit the target, we will look to reassess and look to pullback to re-enter short or have a short-term long to take advantage of any bounce. We have not forgotten the possibility of an inverse head and shoulder but with a weak economic situation and tightening by the Fed-the overall trend remains lower.”

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Palladium Technical Outlook

Last week we highlighted that gains made since 2012 has all but vanished – current price action seems to suggest that palladium could well have hit bottom. Scrolling out the chart back to 2011 there is support here and a potential triple bottom. Buyers flock in at 530 levels and as long as buying interest appear here then expect a return to the upper channel.

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