Normally I would not write a pure technical article. However as per the analysis techniques that I follow it now seems that Gold and Silver are on the verge of a significant decline. On a fundamental basis also I have been very negative on gold and I do believe that we will see much lower levels, however this small piece is purely technical.
As the two charts below show; Gold and Silver after the severe drubbing a few months back had bounced back on the news of FED Tapering delay and more importantly the Fiscal and Debt limit impasse in the USA. The decline has started again now. My key observation in both these charts is that they are now breaking downwards from a triangle formation which in technical analysis is normally a continuation pattern. This breakdown, if confirmed in trading over the next couple of days leads to targets of $ 15 per ounce for Silver and $ 1000 per ounce for gold over the next several weeks.
Quick comment on IIP and CPI inflation – The Index of Industrial Production data was extremely disappointing with the data reflecting no pick up in the economy. All the talk of the government about reviving the investment cycle seems to be just talk at this stage. Several arms of the government seem to be working at cross purposes and thus leading to no project takeoffs. Even decisions on KG Basin, Jet Etihad deal etc after being approved have seen continuous delays. It’s difficult now to see any investment revival in the tenure of this government. CPI inflation as expected was elevated mainly due to high food prices. Ex food CPI has come down from 8.2% last month to 7.6% in October. However food prices that were supposed to come down post monsoon remain elevated.
The positive numbers are coming from the Trade data with strong CAD compression. The CAD now looks eminently financeable and as such should not be a near term concern. Falling global commodities can lead to a further compression going forward as gold consumption remains subdued.
Stock markets have seen a correction after the strong run up in October. Risks seem to be balanced for the short run in the run up to the election results and the Monetary Policy a month from now. Global Developed market concerns are veering towards avoiding deflation rather than inflation. This indicates a continuation of extraordinary monetary adjustment for some more time.
Even as I am completing this article Raghuram Rajan has done a mini monetary policy already via a press briefing where he has clarified RBI’s position as well as attempted to squash market fears. This is overall positive on the margin.
We might not see a big move on either side till the second week of December however the bias, subsequent to the correction we have seen since the beginning of the month should be bullish.