Precious Metal Weekly –A Balancing Act

This week key economic data coming from China, Europe and the US will be heavily scrutinised. Analysts are expecting a somewhat lower than expected given the summer doldrums. However, a surprise number to the upside should be taken as a positive sign that things are indeed changing for the better. Next week mark the all-important Non-farm payroll week and it is already forecasted to be better than previous number. If it comes lower than last month number, it could well spell trouble and turn the market upside down. However, we felt that the market could remain indecisive as uncertainty remains on the surface.

Investors are afraid to commit and many remains on the side-lines with cash – as they mull over the possibility of “calm before the storm” scenario. It could be a double edge sword scenario because if they missed the opportunity to get into the market – they are under invested and could be chasing after higher prices. Meanwhile, the end game here is to minimise risks given that the projection of the global market is deem slightly treacherous. The VIX index remains the barometer to watch as we come to the end of September and entering the final quarter of 2015. This index has remained alleviated by concerns of a Chinese slow down, Yuan devaluation, emerging market instability, rate hike scenarios and many more.

Economic stability is one of the ingredients for a confident global economy to prosper while political stability is also very much needed. Election campaign in the US may add fuel to the much needed stability – Mr. Boehner recent resignation is the first sign of what could be in store in the next few weeks and months. Debt ceiling debate will be the hot topic – highlighting again another kick of the can down the road. Ever since Mr. Obama re-election, rival politicians will take this opportunity to undermine the economy and promote promises on how they can steer the “American Dream” back online.

“Taking all the considered known and unknowns, volatility will remain for the next few weeks – adding fresh pressure for some sort of results that market confidence is back. We expect a hard and difficult ride in the equity market which will find its footing for some sort of Santa Rally come what may. Commodity prices will pick up slowly while dollar will remain strong as long as the rate hike scenario is on the table.”

What can we deduce for next week? One thing for sure, the global market needs to regain its mojo back and the underlying foundation of easy monetary policies remains as central banks across the globe is cutting interest rates. Low inflation as argued by Miss Yellen is transitory as low oil prices and other commodities could propel in extra income that should boost spending in the months to come. Employment remains a key index while wage growth is very much needed catalyst to boost business confidence. Central banks are aware of the risk going forward if they failed to act – last few weeks action and jawboning has failed to say the least to bring about any scant of confidence. One could argue that they could run out of options or time – meaning that there is a possibility for a deeper correction if this runs out of control.

The chart below is a little reminder ever since the 2008 financial crash what really got us here and certainly worth a thought as to how the global economy can claw itself out of this hole.

Dollar Technical Outlook

You just cannot fight the dollar bull as it resurged back into life –Miss Yellen gave the market an extra boost rate hike is on the table before the end of 2015. Many will be pondering if it is a one-off hike in October only – thus ending the hype of the hike once and for all? Two possible scenarios are at play here – one rate hike and none in December or a double rate hike? We think the former is a more conservative and viable scenario – given that the Fed failed to hike in September and the lack of clarity on their tone during the FOMC statement.

The weekly chart is setting out for a potential breakout higher – range trading within the ascending triangle remains. Daily chart also shows a period of consolidation – as the market try to gauge the next big move. Dollar seasonality index is suggesting further weakness is due till the end of the year but we remain uncertain how to translate this into the current price action given that a rate hike is imminent.

“Otherwise, a period of consolidation is expected but we also envisaged that as long as the low is respected then we expect another strong dollar recovery. We envisaged a much lower dollar for the next week or so – but the run up to the “Rocktober” Fed meeting will certainly give the bulls the fire power it much needed for retest higher.”

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Gold Technical Outlook

Analysing gold chart on the daily and weekly basis, we stumbled upon a difficult outcome to the recent price action and what to expect in the coming weeks. However, one thing that helps us separate the noises from the facts are as follows:

Overall trend remain bearish and we cannot rule out a retest of previous low at 1070

This could just be a period of dead cat bounce – short covering and short term safe haven buying

Have anything major changes which could undermine the bearish view?

Gold did break above the 20 weekly ma but failed to close above it. We think that this is a very important level – a break and close above should give the bulls more firepower. Given that it failed, we are adamant that a deeper pullback is still in the cards.

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Silver Technical Outlook

If Silver rally into next week, we are looking to short the white metal at the daily 100 ma 15.50 levels which coincide with the 20 weekly ma levels. Our argument has not changed on the fact that it is remain a bear market and rallies are shorting opportunity.

“Impulsive move higher often depict an impulsive sell off as well. A pullback to retest the 20 daily ma is in the cards and with the opening of trading, we are placing a short with tight stop to test last Friday ominous doji.”

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Platinum Technical Outlook

Platinum prices rocked by VW scandals – price action crushed and the 940 levels come back into play. We were not aware of such scenarios but as we have argued over the last 2 weeks, the fractal could remain in place and we have boldly marked a retest of the lower level. With 2015 low of 925, this has created a positive RSI divergence and as long as price can stay above into next week – a possible resurgence higher is in the cards. However, a deeper pullback could play out if the car industry is rock by other scandals.

Going forward, we will only be bullish on a break and close above the daily 20 ma.

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Palladium Technical Outlook

There we have it, the strongest performance by Palladium – as short covering commences but we now warned that a major pullback is next. We will not rule out a retest of previous low or at least the weekly orange coloured trend line. Short term price could still test higher into next week but rallies could be an opportunity to add on short.

“Weekly RSI is encouraging, palladium may have found the low for 2015 – thus we cannot rule out for higher prices in the short term.”

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