Gold & Silver; Lack of Conviction

LONDON (Sept 27)  Low volume and lacklustre price action has kept gold and silver prices within a tight range as traders are waiting on the side line for further news. Not only is it lack of conviction from either camp, the lack of direction frustrates traders to hold on to their trades. Technically, another low was made and sellers take cover due to continued weakness in the US dollar index. Equity markets have not seen better days as it yo-yo up and down. Threat of US government shutdown by the 17th October seems imminent and further discussion among politicians will be the main headline. Talks of tapering in October are nonsensical given that the last FOMC conference of keeping $ 85 billion QE programme will take time to work. Changing their view within a month shows lack of competency among existing Fed members and the market will question it. We expect prices to break below $ 1300 on the continued bearish sentiment towards the yellow metal. However, expect increase volatility as the market brace for the result on US debt ceiling that could throw out a few surprises.

Gold Technical Outlook

The current price action has unwound previous kneejerk reaction post FOMC statement and back to square one. Prospect of tapering has capped the upside and gold faced strong resistances. Technically, a bearish head and shoulder formation could form with a neckline at $ 1278 area. Should gold break below $ 1275, previous low at $ 1180 seems highly probable. On the other hand, there is a small possibility to retest resistance level at $ 1345 to $ 1355 area but expect strong resistance. Political instability in Italy and the US debt ceiling could fuel another small rally but Edward Meir of INTL argued that it will be a short span before selling continues. At the moment, patience while trading in the trendless market is the best advice.