Is The Sell-off Complete For Precious Metals Prices?

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Wednesday, December 26, 2012

Precious metals prices appear to be rebounding after a viscous price selloff last week. Gold and Palladium have preformed the best of the group with some weakness still seen in Platinum and to a lesser extend Silver prices. This may be signaling that traders are looking for slower economic growth going into 2013 as the more industrial members of the complex are lagging in the price recovery.

Fundamentals

After steep price sell-offs the past few trading sessions, precious metal futures have rebounded off of multi-month lows as some “flight to safety” buying was seen after the U.S. House filed to pass the so called “Plan B” proposal to avert the U.S. falling over the “Fiscal Cliff”. Silver has been the worst performer of late, with the March futures falling over $3 per ounce in just three trading sessions. Silver warehouse stocks have been increasing and concerns of a possible slowdown in the U.S. economy should the Bush ear tax cuts be allowed to expire as well as position squaring ahead of the yearend holidays were seen as factors in Silver’s poor performance. Gold prices also showed some weakness but not nearly as dramatic as Silver’s as the Central Banks of Russia, Brazil and South Korea were reported as buyers of physical Gold on the recent price decline. In addition, Gold is seen as more of a “safe haven” investment than Silver, which has a duel role as a precious and industrial metal. Both large and small speculative accounts are holding net-long positions in both Gold and Silver according to the Commitment of Traders reports, though we have seen some long liquidation selling by large speculators in Silver prior to the recent price collapse. Baring a major global event, we should see quieter trading going into the New Year as traders square their positions for the holiday’s.

Technical Notes

Looking at the daily chart for March Silver, we notice the price decline last week really accelerated once prices traded below the widely watched 200-day moving average( MA). Many traders look at where prices are as compared to the 200-day MA to determine is a market is in a bullish or bearish phase. Long liquidation sell stops were most likely resting just below the MA and light holiday trade may have exacerbated the sell-off. Thursday’s lows were not surpassed on Friday, which gave the green light for” bargain hunter” buyers to emerge. The 14-day RSI also briefly moved into oversold territory on Thursday before moving higher with a current reading of a still weak 34.36. Thursday’s low of 29.635 looks to be support for March Silver, with resistance found at the 200-day MA, currently near the 30.935 area.

Mike Zarembski, Senior Commodity Analyst

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