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Gold, Silver Seen Trading Sideways

Stocks in this article: GLD SLV

Gold and silver are expected to trade sideways this week on the dollar rebound and increased safe-haven demand over concerns related to the economic slowdown in Europe. In addition, offsetting effects of the momentum indicator and exponential moving average, or EMA, indicate the sideways movements for the precious metals.

Gold futures for June last week on COMEX gained more than 1.4% and traded in the range of $1249.70 to $1184.40 before closing at $1227.80. Prices are trading above the Bollinger band suggesting prices may fall over the upcoming trading sessions. Two weeks earlier, markets witnessed 981,554 contracts -- highest in the past nine weeks --suggesting the possibility of a small unwinding of long positions. The momentum indicator is trending at 0.68 (0.70 is considered overbought) suggesting that bullish sentiments may not prevail over the coming sessions. However, prices are trading above the 13- day, 22-day, and 45-day EMA implying bullish sentiments for the week.

Silver July futures on COMEX traded higher, gaining 5.33%, and moved in the range of $19.82-$18.18 before finally closing at $19.34. Prices are trading well above the 13-day, 22-day and 45-day EMA implying bullish sentiment. The momentum indicator was up from 0.42 to 0.62 suggesting prices may trade with prolonged bullish sentiments for the week. But prices are trading closer to the upper end of the Bollinger band suggesting prices may fall for the coming sessions. Two weeks earlier, the market broke the previous crucial resistance of $19.46 but finally closed lower, implying that $19.46 could still be the resistance level for the week.

Economic data this week may turn out to be slightly positive for the dollar on expectations of an increase in U.S. Treasury international capital flows, new home construction, a decline in jobless claims, and acceleration in manufacturing activities. In addition, the dollar index will continue to march higher during this week on economic concerns in Europe.

Last week, eurozone debt concerns continued to provide safe-haven support to the yellow metal, which later erased most of its weekly gains on Friday as the dollar index strengthened. The index gained after a host of positive economic data in the form of increasing retail sales, rising industrial production, and improving consumer sentiment index. Bullion prices rose for the fourth straight week. Moreover, rising investment demand as well helped gold prices reach new highs. The SPDR Gold Trust (GLD) said its gold holdings rose 25.56 tons to 1,214.06 tons for the week ended May 14.

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