Gold and Silver Prices are seen melting unstoppably since last week as if the American and European economic problems have suddenly disappeared.
Gold plunged into a Bear Market last Friday as Comex Gold Futures fell below $1,500 an ounce for the first time in nearly two years. Gold Market traders are describing the fall as largely technical in nature, with sell stops hit as the market slipped first through last week’s longtime lows and then support at the lows that had held since September 2011. Only the break of support levels acted as one of the main catalysts in driving Gold Prices lower Friday. Stop loss levels get triggered which kick out traders from their positions & the ones who hold on to the positions are forced to liquidate if they cannot provide for the mark-to-market losses & any additional margins which may get imposed to cover further potential dangers. Market analysts say that increasing investor confidence in the US market, being reflected by the record highs seen in the equity markets, seems to be dampening investors’ confidence in Gold Investment. I wonder how confidence is being built up on rising national debts & having no logical way out to be repaid in the near future. There is no dearth of bad news in the markets which is bullish for Silver and Gold. This is just a liquidation event and it is purely technical now after being initiated earlier by manipulation. Meanwhile the total U.S. national debt quietly rises in 2013 from $16.8 trillion to $17.8 trillion. No issues there, right? The meltdown in Gold and Silver Prices indicates that this Bullion lifeboat in a sea of economic trouble is also being sunk before the tsunami hits. Gold Prices are bound to bounce up & Silver Prices can be expected rise to new lifetime highs soon enough but for the very short term, the market remains vulnerable to more insanity.
The decline in Gold Prices does not appear to be fueled by any major breaking news & was more surprising coming on a day when US economic data has been soft and equities are on the defensive. The slide came despite weak reports on U.S. retail sales and a soft University of Michigan-Thomson Reuters consumer sentiment reading. There has been a significant reduction in Comex Gold stocks recently, meaning that Gold has been physically delivered on the futures market. Some of the Gold ETF outflows are likely to have been due to physical deliveries rather than solely to shares being sold. So there seems an investor preference to physical Gold holding than a paper promise. Whereas reports of possible Cypriot central-bank gold sales spooked the gold market last week, the greater risk to Gold would be if outflows from exchange-traded products continue. Central bank buying helped to supplement the slowdown in Gold Jewelry demand last year, and the sale of 10 tons itself can be absorbed by the Gold Market, particularly given the strength of China’s demand in recent weeks.
Gold Prices have extended losses in Asian Trade today, falling to $1427 and its lowest level since April 2011. Silver Prices have also followed trend & crashed miserably to $24.10. Technically Silver has hit bottom but Gold Prices may yet not have seen bottom. There can be a sharp bounce up in prices after continued Bullion bashing seen since last week. A bear market is usually defined as a drop of 20% from a previous high, and Gold’s tumble below that line has awakened fears that further declines are likely. Gold Bullion can now expect all price rallies to be sold off & shorting Gold Futures will remain a popular sport. I have been fairly sure until recently that Gold may not rise above the $1810 to $1855 range on a price rally without any major new catalyst, but the latest price crash only further concretizes this view.
The news from Cyprus “weighed on the Gold price, on the view that other peripheral central banks – with much larger Gold Holdings – will go the same way. Needless to say, there is little evidence of this & markets have reacted only on rumors. Statements by the European Central Bank President Mario Draghi triggered Friday’s dramatic sell off in Gold and Silver. During a press conference Friday, Draghi said that while Cyprus doesn’t have to sell its gold, any money that is raised from the sale must go towards covering the losses from the emergency loans to country’s banks. Friday afternoon the Eurozone finance ministers officially backed the 10 billion euro loan for Cyprus. However, Cyprus itself will have to come up with 13 billion euros of its own; the bulk of those funds are expected to come from the closure of its Laiki bank and the restructuring of the Bank of Cyprus. Though Portugal was granted an additional seven years to pay back their loans as a reward for sticking to their austerity programs, any default could force them to sell their a part of it’s vast Gold Reserves. Portugal is number 14 on the World Official Gold Holdings with 382.5 tons, and its percentage share held in gold of total foreign reserves is 90.3%. While Cyprus’s Gold sale in itself is small, heavily indebted Eurozone nations such as Portugal, Slovenia, Hungary, Spain and Italy could also find themselves under increasing pressure to put their bullion reserves to work.
Comex Gold below $1423 can slip to $1372.6 also, but strictly on volatility. But if a bounce up in Gold Price continues as is seen from the day’s low of $1427 seen till now, then Gold may rise up again to $1463.5 & $1513. Comex Silver has slumped to $24.10 & has a limited downside to $23.50. A Bounce up in Silver Prices can lead to a rise to $25.48, $26.56 & $27.41 also. MCX Gold below Rs. 27,321 can slip to Rs. 26730 & then to 25,777 also, but strictly on volatility. If the bounce up in MCX Gold Price continues as is seen from the day’s low of Rs. 27,100 till now, then Gold may rise up again to Rs. 27352. Buying may gain momentum above this level & trades may rise further to Rs. 28,270, 28,873 & 29,800 also. MCX Silver has slumped to Rs. 46,079 & has a limited downside to 44,628. A Bounce up in MCX Silver Prices can lead to a rise to Rs. 47,746, 49690, 50860 & 52,804 also.
For more clarity on the Future occurrences, read more on Forecast 2013 – The World at the Edge of an Abyss
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