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Precious metals slip again

Last updated 7/6/2012 11:18 AM ET (GMT -5) 0 Comments - Add your comment

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David Morrison

Market Strategist, GFT

Follow @DMorrison_GFT

Gold and silver look set to log their third consecutive negative trading sessions. Both rallied sharply this time last week on renewed market optimism. This followed what, on the face of it, looked like a successful EU summit. However, prices have been heading lower since Wednesday. Gold has backed away from resistance at $1,625 while silver failed to recapture the $28.50 level. This marks the 78.6% Fibonacci retracement of the Dec –Feb rally, and also ties in with silver’s 50-day moving average. Prices fell further yesterday despite a slew of monetary easing measures from the European Central Bank (ECB), the People’s Bank of China (PBOC) and the Bank of England (BoE). Precious metals rallied briefly following the surprise move from China, but investors were ultimately disappointed that the ECB and BoE didn’t do more. But although gold and silver have given back around 50% of their post-EU Summit gains, they have held up relatively well given this week’s slump in the euro. After coming close to breaking back above 1.29 last Friday, the EURUSD has reversed sharply. Today it fell below 1.23 which is around 150 points below pre-summit levels. If anything, this move indicates that investors are set for more bad news out of the euro zone. Spanish 10-year bond yields once again topped 7% today – an indication of the stresses that still exist despite the apparent agreement reached last week. German Chancellor Merkel appeared to make concessions to her troubled euro zone neighbours, but now these appear to smaller than they first appeared.  Today’s US Non-Farm Payrolls brought more bad news. Coming in at 80,000 (against a “whisper” number of 120,000), payrolls logged their fourth big successive “miss”. However, the feeling is that they just weren’t bad enough to warrant the announcement of another round of quantitative easing when the Fed’s FOMC meets on 31st July/1st August. Without additional liquidity measures, precious metals could struggle to make much headway this summer. Gold may find support around $1,580 and $1,550 below there. But silver looks likely to retest its December low if it breaks below $27 again.

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About The Author

David Morrison has worked in financial markets for over 25 years. He joined GFT in February 2009 to deliver commentary and research for derivatives products. Before then David had been instrumental in setting up two spread betting companies, managed trading desks, and implemented and ran successful risk-management strategies.

He has appeared on Bloomberg, Reuters, and Sky TV, and is widely quoted by financial newswires. He has written numerous articles covering economics and trading strategies using fundamental and technical analysis.