Gold and silver are consolidating with a firm bias at the moment. Gold April future settled at $557.00 while May future settled at $969.50. The US dollar continued to gain against the euro and sterling as it fell against the yen and the loonie. Crude oil pared some of the last Friday’s gains.
It’s a new phase for gold and silver. After nearly six months of rise gold and silver are trading in a wider band. Investment as well physical demand in these commodities is not expected to fall over the coming weeks and months. All the bad news which has been ignored so far will start affecting gold and silver in the short run, if and only if there is a reduction in geopolitical tensions. The movement of crude oil prices will have a direct bearing on gold and silver prices as they are best bet against crude oil induced inflation and interest rates. Even a major reduction in global liquidity will not alter the medium to long term bullishness. At the moment there is a de - linking between price of gold and US dollar movement. In our view when the US dollar starts its descent (probably in the second half of 2006) the inverse relationship between gold prices and US dollar will once again start. As long as the US dollar appreciates the de - linking between gold and the greenback will be witnessed.
The current consolidation phase of gold and silver is the calm before the storm. There are ready buyers on falls of $10 - $15 for gold and $20- $30 for silver. Most of the volatility is nothing but stop loss eating moves as there are more jobbers and short term than long investors in the market and it’s the jobbers that help to create volumes. It’s just like big fish eating the small fish. It’s better to use a combination of bull and bear spreads to hedge the risk.
GOLD
Gold is trading in wider $540.00 - $568.00 zone. Gold needs to break $562.50 and $568.00 for further gains to $580.00. For the day as long as $550.00 holds on closing basis the downside is limited.
SILVER
Silver March future expiry will add volatility to it. Silver May future needs to break $982.00 and $995.00 for further gains. On the lower side as long as $952.00 holds on closing basis the downside is limited.
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