Gold and silver prices pulled back sharply on Monday and Tuesday this week with the “reason” put out by market commentators that investors had become less concerned about major geopolitical issues in the Middle East (Syria, Iraq as well as Israel and Gaza) and the Ukraine. At the same time, they also seemed happy to believe that the problems dogging Portuguese Bank Esprito Santo and its parent group had gone away. Hmmm…
That optimism may well be misplaced. The situation in Portugal looks far from resolved. The complicated and incestuous nature of the cross holdings between the bank and other companies within the Esprito Santo group could mean that the real crisis is yet to come after all, the parent group was a forced seller of the banks stock yesterday and another subsidiary will seek bankruptcy protection today in Luxembourg as substantial debt repayment falls due.
The European economy has posted a series of poor data points over the last week with the German ZEW survey under shooting analysts’ consensus forecasts and Eurozone industrial production figures also disappointing. This has caused some commentators including ourselves to wonder aloud if the recovery in the EU economy is being derailed, if indeed it ever got going outside of Germany…
The ECB is once again offering banks access to billions of Euros of cheap funding through the so called Targeted Long Term Repo Operations or TLTRO in the hope of stimulating the Eurozone economy through increased bank lending to small and medium corporates. However, there are no guarantees that the banks will do anything other than buy government bonds with the “free” money given that these bonds yields comfortably outstrip the 0.25 % charge the ECB will levy on this fresh funding round.
Nor should we sleep soundly in our beds because the insurgency in Iraq has slipped from the news headlines. The situation in the wider middle east remains as fractious as ever and indeed may become more complex in the short term as sporadic fighting in Libya threatens to become something more concerning and entrenched.
Elsewhere, as we heard from Federal Reserve chair Janet Yellen yesterday in her Humphrey Hawkins testimony, the outlook for the US economy remains cloudy and low interest rates look to be in situ for the foreseeable future, despite the impending end of QE in the USA. Whilst in the UK, the inflation monster has made its first stirrings for some years, as prices rose 1.9% in June, one swallow does not a summer. Traders and analysts will be watching this data very closely from now on and we believe here at Titan that we are at the mere foothills of pipeline inflation. Certainly absent a stock market crash.
Given all of the above, the case for safe haven assets such as gold and silver seems clear and has in fact strengthened. Prior to this week’s correction, Gold had rallied by near $100 an ounce from the beginning of June to print highs of $1345.48 in the London spot market. Following this week’s sell off, we found support for the yellow metal at $1293 with gold now back above the $1300 round number as well as the 50 day EMA line at $1301.54. Its 20 and 200 day counterparts are found at $1312.69 and $1311.05 respectively and should be watched closely by traders in coming days.
Silver has enjoyed an even sharper rally since the beginning of June, moving up from $18.74 an ounce on the spot market to trade as high as $21.57 by late last week before retracing back to $20.68. We flagged this move here and have profited handsomely from it for our clients in recent weeks. As with gold, in Wednesday’s trade silver regained the 200 day EMA line at $20.7 and it will be a bullish sign to us if it can consolidate its price above this level in the near term. Resistance around $21.40 and $22.00 will be in trader’s sights, thereafter with $23 and $24 the next targets to aim for.
We believe here at Titan that the weak hands have been shaken out in recent days and this bull run has a long way to go. We remain resolutely long the precious metals spectrum.
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This piece should not be taken as an advocation to buy (or sell) these instruments and you should always take independent financial advice in relation to your own personal circumstances. * Tax legislation can change.