Strong month end demand and portfolio rebalancing has apparently helped gold and silver to edge higher and to re start their journey to $600.00 and $1000.00 respectively. The US dollar was bashed on weak US economic numbers and markets realization that the Federal Reserve is nearing the end of its tightening cycle. Gold April future rose to a high of $564.10 while silver May future rose to a high of $984.50 before settling at $563.90 and $980.50.
Yesterday we had mentioned that gold’s $550.00 - $560.00 consolidation was just calm before the storm. The bullish storm has arrived as nobody wants to go short before the 6th March decision on Iran. Diplomatic efforts have been intensified to prevent sanctions or use of force against Iran. Iran too has been cooperating. French President Jacques Chirac has said that Iran had the right to civil nuclear power as long as it respects its commitments to the demands of non-proliferation. Traders are not taking chances and are adopting a buy first sell later strategy.
Gold and silver are also gaining on speculation central banks will slow sales or buy back bullion. Central banks will reduce sales to 13 million ounces in 2006 from 20.3 million last year, which was the highest since 1993. The change marks a shift from the unrestricted central-bank sales that sent prices to a 20-year low of $253.20 in July 1999. In September that year, 15 central banks in Europe pledged to restrict their sales and lending of bullion for five years. In 2004, the limit was raised to 500 tons from 400 tons. Central banks of Asia and other nations which have huge foreign exchange reserves have started investing a part of their US dollar reserves into gold. If the equity markets of developed nations continue their slide and treasury yields fall then gold and silver will attract higher investment.
GOLD
Gold now targets $580.00 for a possible assault on $600.00 - $620.00 next week. However gold faces initial resistance at $568.50 and short term key resistance at $580.00. On the lower side there is a support at $550.00 and $540.00.
SILVER
Silver is within striking distance from $1000.00 and $1030.00. However it needs to break $995.00 before that. On the lower side as long as $952.00 holds on closing basis the downside is limited.
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