Precious Metals Weekly: Spill Over Crash

Fundamentally, the global economy is on the path of QE-induced recovery. However, commodity market remains subdued and reflects lower prices - over supply and lack of real demand is being reflected in the market place. We are seeing this throughout the industrial metals such as Copper, Aluminium, Platinum, Palladium and Rhodium.

Over the last few weeks and months, the financial world were celebrating all time high on almost a daily basis and the herd mentality drove the market further. There was a short term sustained euphoria or what we like to call the distribution effect of wealth. Those concerns about the economy suddenly disappear or shelved under the carpet for that while.

That skeleton in the cupboard looks to come knocking round as Eurozone continue to do battle with Grexit and last Friday we have the Chinese stock market plummeting close to bear territory. We beg to question from our previous argument if this QE-induced recovery is sustainable in the long run and can it be sustained after all? Many argued it will be too difficult as newly elected politicians preached "time for a change" yet tough reforms are yet to be made.

What is in store for us next week? The good news is it will be a short week with the US close on 4th of July. The bad news is we will start the week with a tsunami of Greece news having no deal but a referendum over the weekend. Deadline after deadline has passed yet we still have no solution. Last week commentary, we highlighted how the US dollar index will benefit from such turmoil as it stands for a safe haven currency.

Grexit scenario added an extra element of uncertainty but should deal arrive, the dollar rally could well subside as traders look elsewhere for better yield.

With a short week ahead in the US market, the dollar positioning is set to create volatile price action. Next week we have a host of employment data and technically, dollar could rally further to test 20 WMA. A solid break and close above could meet resistance at 97.00 levels but we are not ruling out a higher dollar given the uncertainty in the Eurozone.

In the medium to long term, we envisage a weaker dollar index as the last Federal press conference rings a clear dovish remark and additional (not necessarily) helpful comments from other FOMC members may have solidify that Yellen wants a weaker dollar for now.

Gold Technical Outlook

We maintain the argument that a dip in gold is a swing long opportunity. Last week price action has an impulsive selling and all the daily support zone were taken out. Weekend euphoria that a Greece deal is imminent has had the safe haven metals to sell hard. However, there was no deal and the safe haven demand did not pick up at all. The reallocation of dollar long has indeed took a hard beating on the metals. Given that the Greece turmoil could go on to the wire, a possible gap up on Gold on Monday could be at play.

Silver Technical Outlook

Weekly Chart

Silver failed to close above the 20 WMA at 16.43 and that will act as resistance. Only a clean break and close above will give the white metal a bullish momentum to possibly test the 50 WMA which currently sits at 17.25. There are 2 possible scenarios:

1) With the RSI at support, we may see a support to test higher prices first. Current price action could be a great buying opportunity with a limited upside of 17.20

2) History tend to repeat itself and we are not ruling out that prices could take a taken like Palladium, taking out all meaningful support zones. Current price action is range trading within a bear flag formation and the general trend remains bearish in the downward channel.

The weekly RSI may have found support and could bounce higher here before taking a dive lower.

Platinum Technical Outlook

Weekly Chart

Price action in platinum decided to spin lower and took out our long stop at 1060 by 2.5 points. Technically, price breached the Bollinger band and a bullish hammer could mean a reversal indication. Shorter time frames also indicate a possible breakout for a corrective rally which may start as early as next week. We will continue to run the platinum short with stop loss at break even as insurance but looking to long on a breakout.

Here are some of the reasons to go long:

- Platinum is oversold after the FOMC statement that had a revision lower on US GDP

- Dollar weakness has not transpired into any buying but that is about to change

- A 20 WMA reconnect could be the play for a corrective rally

- 4 hour RSI bullish divergence thus a corrective rally is overdue

Palladium Technical Outlook

Weekly Chart

There remains no corrective rally as the selling took out key support zones. Price action is suggesting a run to 655 remains possible on this weekly chart. For the 7thconsecutive weekly close with red candles – Palladium could in effect target a 2 months of selling bonanza. Next key support lies at the channel line of 650 – 660 levels for a possible swing long.

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