Bond purchasing has been doing great for a while, with particular attention to the German Bund and the US T-note, which has updated its lowest since 2012 in terms of yield to 1.358%. Before the Brexit the yield was approximately 1.8%. We can see the same trend for haven currencies like the Swiss Franc and the US Dollar. The EUR / USD stands at $ 1,103.
The focus, even during this week, will be on the European banks and any possible maneuvers that could be taken in the view of the stress tests of July 29th. These issues could be discussed during today’s Eurogroup or during the Ecofin tomorrow. Regarding central banks, the most important event will be the meeting of the BOE, from which we cannot expect any moves regarding monetary policy, even if the odds of a rate cut are increasing.
After Brexit won, volatility and uncertainty have been reigning supreme in Europe, especially in the financial markets and on the political front (in Spain, Portugal, Italy and Austria), with the elections in Spain and Portugal and the referendum in Italy. Uncertainty that leads investors to sell risky assets and buy safe-haven assets, precious metals in the first place: Gold and Silver.
Gold and Silver Technical Analysis
Technically, gold is into a phase of adjustment after the recent gains that have brought prices close to 1,380 $/Oz. Graphically we can observe a double top at 1375 $/Oz, a reversal figure that brought prices to test a first support in area 1360 $/Oz. A second support is in area 1,350 $/Oz and a third in area 1340/1335 $/Oz. Until prices station above these levels, the uptrend will remain intact, with the possibility to go long on the supports.
The resistance between 1,375 $/Oz and $ 1,380 $/Oz also represents an overbought zone at least in the short term. The next levels to watch if the previously mentioned resistance levels were to be exceeded on the upside, are 1,400 $/Oz before and 1,430 $/Oz after.
For the future evolution of prices should be important to monitor also the correlation with the cross Eur / Usd. Currently the correlation turned out to be positive: if the cross Eur / Usd rises also gold rises and vice versa. Updated data from cftc show how speculative positions (Futures and Options) have arrived to their max in history, 316000, and this may lead to some profit-taking in the short term.
The less noble cousin of gold, silver, shows a greater relative strength. At present prices are steady on their highs for the period at 20.4 $. Even here the positions that are emerging from the cftc data are on their highest level ever seen at over 90000. The gold / silver ratio now stands at 66, far from the recent peak at 80, where silver had been penalized too much. This explains the rise in the purchasing of the metal. Graphically, the resistance levels are placed on the recent max, in area 20.7 / 21 $/Oz. Above these levels prices could find an acceleration of up to 21.5 $/Oz before and 22 / 22.2 $/Oz after. On the other hand, supports are positioned respectively 20 $/Oz and 19,5 $/Oz where we can find the moving average at 200h.
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