Precious Metals: The Tide Has Turned

We must stress that this remains temporary (i.e. a corrective rally) until invalidated!

As we approach the 2nd half of May, we have seen a significant correction in the US dollar index which help propelled an impulsive move in the commodity market. Silver was leading the way, front running the worse than expected set of US economic data and a technical break out further raise the momentum to go higher. Equity market also took a small knock after the bond rout which saw rising yields in the bond market, both in the US and in the Eurozone.

Traders will keep their eye on the US dollar index over the next few weeks as market try to stabilise after rafts of worse than expected economic data. One thing for sure, we could see pressure for a weaker USD in the short term – supporting and stabilising equity market. However, the double edge sword in this scenario is Federal Reserve full intention to raise interest rate this year.

Projection for a June rate hike has been squandered and traders are now looking for a September hike instead. With that view, we see a dead cat bounce in the recent USD weakness followed by another run lower – thus supporting a change in tide and higher commodity prices. We are also seeing the money flow from the bond market to Forex to commodity and equity.

Over the weekend, geopolitical news in the Middle East could destabilise global equity market. This is followed by the never ending fiasco of Greece debt problem. All eyes on economic data out from the US which could propelled the Dow Jones and SP500 to another “artificial” all time high on a low volume RAMP!

Gold Technical Outlook

Weekly Chart

Interest and activity has started to pick up once again after weeks of range trading and lack of direction. The ground was laid several times for gold to move higher but failed throughout the month of April 2015! After putting up a negative weekly candlestick at a low of 1168, bargain hunters enter the fray and the selling paused. Once again, weakness in the US dollar has finally propelled the gold bulls to break pass various key resistance, building a solid support at key level of 1178 and move higher impulsively after the release of poor US economic data.

Looking back at all our previous (weekly report), we have notified readers about the potential looming breakout, how gold is so dollar dependant, build in May & go away and last but not least calamity signs ahead. We are mindful to buy and build on any pullbacks, given that the US dollar weakness could further spur interest in the yellow metal. Take note that US dollar may enjoy a short period of dead cat bounce which should allow us to build our long position followed then by another move lower – thus propelling gold higher.

Silver Technical Outlook

Weekly Chart

We are always wary of Silver price action given how volatile it can be. Our suspicion are further aroused when calls are made by analysts that the bear rout on Silver prices is over and we are heading back to the glorious bull run. Fundamentally, the demand for silver as industrial metal is there but the ample supply and unwinding of speculative position has merely taken it back to down to earth. There are early signs that sellers have failed twice to take it lower beyond 14.00 which is the line in the sand for producers.

However, please take note that the Monthly chart has an RSI that is rising but it has yet to confirm a bullish divergence. We will take a close look for another test lower, probably below previous low of 14.03 while the RSI remain higher so as to confirm that the trend has indeed change. Technically, the weekly RSI suggest there are more rooms to the upside and this run up remains a corrective rally.

Platinum Technical Outlook

Weekly Chart

Impressive move as Platinum regained all its losses made at the end of April 2015. The move high and recent price action suggests that this run has legs and could have further potential upside. The first sign is from the breakout of the weekly downtrend line at 1150 levels and we would not be surprise if next week retracement to 1140 – 1150 levels happens. If the support holds, this will further strengthen the case for a more potent bullish move. Important Weekly Resistance Levels are:

20 WMA at 1178

RSI that might hit weekly resistance at 50 (NOTE that Platinum has not managed to break above 50 in 2015!!!)

A POTENTIAL BEAR FLAG FORMATION?!

Palladium Technical Outlook

Weekly Chart

We want to highlight comments made from last week commentary that hit the spot “We are deviating slightly here but the daily chart shows that price failed to close above the 200 DMA and this could mean that a slight pullback in next week price action to test 780 levels but we expect the run higher to continue.”

Given that the pullback has happened and this is a healthy one, we expect a higher Palladium prices in the coming week with a target of 820 – 830 levels. Therefore, we are looking to build a medium term – LONG positions to anticipate the move. Currently, palladium is trading above the 20, 100 and 200 WMA. Next resistance to overcome is 50 WMA at 807.

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