The precious metals market has remained in a "sell off" mode despite the U.S government shut down and the looming debt ceiling debate. The metals have been bearish all week with the dollar index rising.
The yellow metal has seen a rally to $1330 twice last week, but failure to close above down trend line at $1325 has brought in more selling. The US political stalemate over the October 17 deadline to raise the debt ceiling remains the key element of uncertainty, while politicians continue to argue over the 2013/2014 budget, which has caused a partial shutdown of government. House of Representatives Speaker John Boehner told Republican lawmakers Thursday he will give President Barack Obama a proposal extending the government's ability to borrow money through Nov. 22, but only if he agrees to negotiate over ending a partial government shutdown and a longer-term increase in the debt ceiling.
It's been trying times for gold bulls as in the face of all this negativity the yellow metal has remained subdued. The metal is heading for the sixth weekly loss in seven and investment holdings are shrinking even as U.S. lawmakers wrangle over the debt ceiling and budget, seeking to avert a default and end a government shutdown. Just this past week Goldman Sachs called gold a "slam dunk" sell. While gold may look weak fundamentally, in this sort of environment, you can make a strong argument that gold isn’t too bad a thing to hold. China must seem to know more than the rest of us, as China is on pace to consume a record amount of gold this year, which may be partly due to the central bank diversifying its foreign-exchange reserves. China has imported 861 tonnes of gold via Hong Kong, that is more than double last's year number of 361 tonnes.
The metal is looking to re-test support level of $1277, a mark last touched in August during Asian trading hours. Spot gold has remained in a tight $50 range of $1277 to $1330. A break of either side would yield a quick $50 move.
Spot silver has been the shining star. After touching a high of $25.14 the metal has spiralled lower. The dual role metal has held steady despite gold breaking $1300. Unlike gold, silver has many industrial and medical applications which is why it's tied to the equity markets. Industry needs it because it’s one of the best conductors of electricity. There are few "pure" silver mines in the world as most silver is a by product of base metals. A downturn in base metals would put a squeeze on the physical metal. We expect good things to come for the grey metal, it's a matter of weathering the current storm.
Support $1277/$1245 $20.63/$20.36
Resistance $1301/$1325 $22.50/$22.86
October 10th Closing Prices