It was one of the best weeks for silver as March future rose to a high of $982.00 the previous week. Gold, copper and crude oil all remained firm. Silver rose on news of Exchange Traded fund (ETF) being started. The US dollar gained as US treasury prices fell.
This is a very crucial week for the global financial markets. We have the FOMC meeting where interest rates are expected to be raised by a quarter of a percentage. The world will be without Fed chairman Allan Greenspan and markets will be greeting Mr.Ben Bernanke as the next fed chairman. The Iran and the Palestine situation will be closely watched. The outcome of Iran’s reference to UN security council over the weekend and the mid week developments (If any) will add volatility to gold and silver prices. US administration has said that it will withdraw aid to Palestine under Hamas leadership. On the economic number front we have the US January non farm payroll numbers. The December payroll numbers had a very positive affect on gold and silver and I am optimistic that this time around the January payroll numbers that the US dollar bearishness and firmness in commodity prices will be further cemented. Interest rate arbitrage will not support the greenback as the ECB is also expected to raise interest rates soon thereby nullifying the Fed rate hike.
The transition from Allan Greenspan to Ben Bernanke will be very crucial not just for US but for globally financial markets. The question is whether Mr.Bernanke will continue with the legacy he will receive from Mr. Greenspan or he will alter it all of a sudden. The US economy is strong and growing as Mr.Greenspan retires. The US housing market is at an all time high and there are early warning signals that a gradual slowdown in US housing sector is in the offing in the coming months. The asset and wealth creation which is there due to higher growth will not be at the same pace. The way Mr.Bernanke deals with the same will be very important. He also has to deal with inflation due to crude oil above $60.00 a barrel, interest rates and money supply. Mr.Bernanke will have to balance the interest rates hikes and interest rate cuts so that it does not hurt the housing market and spending power of consumers as well as growth. The US economy under Greenspan has also seen record job cuts in US manufacturing sector. Ford, GM and a host of other companies are cutting more jobs instead of creating them. Bernake has to ensure that the current job cutting trend by top companies are reversed so that the long term demand led growth stays. If there is a slow down in the US housing sector in 2006 then which sector takes it over from the housing sector. The US current account deficit and trade balance will be black spot for US long term treasury investor unless they are within manageable limits. In short markets are uncertain over the way Mr.Bernanake will deal with the macro as well as micro economic situation. Whenever there is uncertainty gold, silver and other precious metals have a tendency to rise.
In the current week gold and silver will be highly news driven. However the medium to long term bullishness remains intact for gold and silver with $600.00 and $1050.00 as the immediate price targets. Pullback will provide opportunities for late comers to enter.
GOLD
Gold has been consolidating higher with $550.00 as the new support zone and is trading in $554.00 - $568.00 zone. A consolidated break of $569.00 for four hours will result in $575.00 and $600.00. Only a close below $550.00 for two consecutive days will result in further losses to $540.00 and $525.00 else the downside will remain limited to $550.00.
SILVER
Silver now targets $1000.00 and $1050.00 if it holds $952.00 on closing basis. It is nearing over brought territory and there may be a correction to $952.00 and $926.00 which will present yet another buying opportunity.
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