Precious Metals Paradox: Sustainable Economic Recovery

Last week we covered briefly the concept on how central banks and government interventions are shaping up the global economy at a scale without any precedent. It is true that stimulating the economy is part of the tools that they have but it does come at a price. Prioritising on the economic recovery has never been questioned, rather it is embraced that something has to be done regardless to save the “casino” going.

Imagine if there was no bailout and the economy go down the lane of a hard reset? Severe depressions and a repeat of 1929 economic scenario may not be suitable – undoing all the economic successes and potentially create masses of unemployment – it is indeed not a pretty picture.

Going forward, the Federal Reserve and the Bank of England will implement an interest rate hike. The period of “normalization” is the 2nd phase to bring the economic recovery to a sustainable path. It has been a long and arduous process but certainly one that show progress. These 2 central banks have given the market enough time to adjust to the rate hike.

While others such as the RBA and BOJ will play along by holding back further interest rate cut – anticipating a strong dollar and British pound. Will this be a very wise move for the next few years of normalization? Only time will tell.

In the meantime, the Chinese government needs to do what it can to revive its economic powerhouse. The latest stock market crash has left many questioned if a 7% growth is no longer the case. China is heavily reliant on positive economic investment into the country and as the 2nd largest economy – it is still growing and producing most of the stuff that we buy. Everything made in china is still important – the trump card for a positive trade balance and economic prosperity.

As we progress with the ban on short selling and the introduction of various stimulus – keeping the stock rout at bay will continue to be the priority. It may also be a good time for investors to invest now as cash rich companies in China are forced to do buyback programme to shore up the price.

All in all, the short term view remains positive going into the final trading quarter of 2015. At least it seems that every central bank have everything “under control”.

Technically, the weekly dollar chart is showing a potential triple top formation. Meanwhile, the daily chart ends with a swing high failure as price continue to ping pong within the megaphone pattern. In the short term, we expect further weakness as the last daily candle is a bearish engulfing and it trade below the 20 daily ma.

After a decent NFP numbers, price tried to break out but it failed. Instead, it has swung back lower and on this occasion – a very clear buy the rumour sell the news scenario. One thing for sure, there are many dollar longs trapped at the highest level thus suggesting further weakness going into next week.

We will continue to monitor the daily chart as the RSI divergence has given a clear signal that last week push higher was very much just a bull trap. Should the weakness prevail as we envisage, then the 20 weekly ma is the target which confluence with the bottom of the megaphone pattern.

A higher dollar index remains on the table as long as the Federal Reserve remains undecided on a rate hike. One thing to ponder – does the current chart set up look like it is topping? Various well known banks call for a higher dollar – at least another 10% appreciation.

Gold Technical Outlook

Every gold investors have the same question – have we bottomed? It is not an easy answer but this does not look like a bottom yet due to a technical damage that was done recently. One could argue that a short term bounce is due and yes that could be the very case here with as we anticipate a dollar weakness. In addition, gold found support at 1086 which it has been testing and building layers of supports throughout last week. Sellers failed to take the price lower – creating several higher low wicks. The big obstacle remains for the buyers to convince the market that it can break above 1100 and target a 50% retracement of the last breakout.

Weekly chart show a potential inside day pattern and only a clear break above 1105 will give the bulls some rooms to test higher.

Silver Technical Outlook

This is the second week that we have a positive green candle and a potential double bottom formation. Price retested the low at 14.36 but sellers could no longer drive prices lower. Daily chart also have the price close above the 20 daily ma that has been elusive for the past few weeks. With the dollar index swing high failure, further weakness in the dollar should give Silver buyers the catalyst to test higher and we expect a period of short covering – potentially a 50% retracement towards the 20 weekly ma.

Platinum Technical Outlook

Weekly RSI breached previous low and at extreme oversold levels. There is a potential double bottom after weeks of selling since the start of May 2015 – is this the end of the selling rout? We could be in one if we are to repeat 2014 price action that seems to suggest that a period of consolidation sets in but price will ping pong to retest the low of 944. Going forward, a break below 944 could spell further trouble. As long as it holds, we look to play within the range of the box.

Palladium Technical Outlook

Palladium could continue in play with a potential target of 578.8. A bounce to 20 WMA will be the minimum target given that it has disconnected ever since 1st of June! The daily price action has not close above the 20 ma but RSI continue to diverge – a tell-tale sign that a bottom is forming an we are looking for a dead cat bounce.

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