Gold economic releases coming from the US in the recent past have also been favorable for the economy, which indirectly shaded the save haven appeal of gold. Meanwhile, the Chinese economy is in trouble and the growth rate is at a mere 7.50%, reducing the consumption demand of gold and many other commodities. In the next week, the Chinese markets will remain closed, which will further push gold prices lower as physical consumption may decline. If we look at the derivative contracts of gold at the global front, the February futures contract is about to expire shortly and hence, participation has moved to the next available April contract. In the last week, the prices, which fell over 3% are supported by higher volumes and open interest. This also indicates that gold prices next week may extend the downside correction with high volumes and open interest. Hence, we hold a bearish view on gold prices in the short to medium-term. In fact, fund houses globally carry a bearish view on gold. Hedge funds and other large speculators encompass abridged their net-long holdings to 735,217 futures and options across 18 U.S.-traded commodities as of January 21, contrast to the all-time high of 1.56 million, according to the United States Commodity Futures Trading Commission (CFTC) data.
Meanwhile, most of the economies in the world are still below their target GDP growth and the muted inflation, which leads to gold demand gradually diminishing in the world. We believe that the short to medium-term bearish trend on gold is still intact. If we look at gold from the investment demand front, the drastic fall in gold holdings in the last week halted for a while. The SPDR gold trust, the world's largest gold ETF showed for the first time a meager increase in investment gold. The holdings were at 790.46 in the last week and as of 30th January remained at 796.16 tons. Looking at the above development we believe gold commodity may trade down in the next week while locally fall could be less due to currency depreciation
Gold's April MCX futures prices started declining from a weekly high of 29256 and are currently trading at 28645(3:58 PM IST). Trading below the exponential weekly moving averages (8,13 & 21) is signaling that the downside pressure will remain intact. Prices are expected to move in the range of 29024-28231 (23.6% to 50% retracement of the range 30516-27517). For short-term traders, we suggest selling. The pivot point is seen at 28817 (taking 29256, L-28520,C-28675). S1/S2/S3: 28378/28081/27642 R1/R2/R3: 29114/29553/29850.
Silver as it fell over 3% globally. We have been discussing the silver outlook in our daily insight and that the metal is taking negative cues from the lower equities globally, the inferior performance of base metals and the negative trend in precious metals. As of 2:47 PM IST on Friday, spot silver was seen trading at $19.12 and the most active March futures at the domestic MCX exchange is trading at Rs 43,242 per Kg. The factors explored in the gold outlook are similar to silver and hence, silver prices have fallen in the last week. In our reports, we have also been talking about the gold-silver ratio strategy. The gold/silver ratio has moved up from 63.75 to 64.78. As explained, the fundamentals are completely bearish for silver, especially when the emerging markets (EM's) are the topic on headlines. We believe that the next week is going to see a massacre for precious metals and silver as well. Due to this, we hold a completely bearish view on silver and expect it to under perform gold.
In this regard, we further suggest a ratio trade on the same. The ratio had made a high of 66.75 in the end of July 2013. We believe that if the same bearish trend in silver continues, the current ratio may breach the same.
Interestingly, from the investment front, silver holdings for the entire week have been steady at 335000 tons, unchanged since 17th January 2014. We are unable to cite any reasons for this but, we believe that the clear bearish trend may be keeping investors away from holding silver.
The data from the economic events are explained in our weekly economic analysis. Looking at those data, we believe that silver may remain in peril in the near-term. Hence, we hold a bearish view and suggest selling from the higher levels.
GOLD SELL MCX APR ON RISE NEAR 28800 SL 29115 TGT 28485-28275
SILVER SELL MCX MAR ON RISE NEAR 44200-44300 SL 45200 TGT 43200-42500.
Mr. Kiran Kumar Reddy, Technical Analyst and Founder of Charanwings Advisory Services providing trading advisory services in Equity, Derivatives and Commodity. He provides advisory services to large number of retail as well as Institutional Investors and traders and His advisory services giving back support to various broking houses and product support in Stock Futures, Commodity Tips to Dalal Street Investment Journal (dsij.in) since May 2012. He is also having good command in elliot wave theory his articles have also been published in various financial websites and he is also contributing daily news letter on equity market, which were published in Indian notes website. He also made a guest appearance in various workshops which were conducted on stock market awareness. http://www.charanwings.com
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