The silver lining in silver continued as silver May future rose to a high of $1059.50. It settled lower at $1056.50. Silver rose after the Securities and Exchange Commission approved the iShares Silver Trust following weeks of speculation that had helped support the metal. In effect, purchasing silver shares will provide investors with a new mechanism to participate in the silver market,” the SEC said. Each silver share would correspond to 10 ounces of silver, it said. The silver trust is like a tracker fund that follows the underlying metal price and is seen as an easy alternative a way for investors to have exposure to the metal silver without having to buy the physical actual metal.
Traders are buying silver in anticipation of the silver exchange traded funds and silver trusts, but the actual trading is yet to begin. It’s all the hype of new silver trading financial paper instruments which is jerking up the prices. These instruments have yet to start trading. Once they start trading silver will fall as traders and investors book their profits.
Gold is consolidating at the current levels. The range trade in gold is like a volcano which can burst anytime. The Iran issue is yet to be over. The U.N. Security Council failed to reach an accord on Tuesday on how to respond to Iran's nuclear programs even as President George W. Bush warned Tehran could blackmail the world if it had the bomb. China will take measures to meet US complaints about their bilateral trade imbalance as part of next month’s trip to Washington by Hu Jintao, Chinese president, but has warned the US also to take responsibility for its economic problems. Gold may rise further and test $620 - $630 mark if the Iran issue goes from bad to worse and there is deadlock between US and China over trade related issues which in turn leads to protectionism in US.
The US dollar has been gaining. There are reports that its just the Chinese central bank and other central bank buying of the greenback which us supporting the greenback. But this cannot continue in the long term. There are greater fears of a US dollar slide towards the close of 2006 than in the short run. Bank of Japan which stopped intervening in the yen in 2005 has once again started to prevent major yen gains. All these news effect the carry trades in every commodity.
Considering the fragile geopolitical situation, gold and silver are expected to trade higher. Sharp pullbacks (if any) should be used as an opportunity to go long.
GOLD
Gold needs to break and close over $558.00 - $563 zone for $575.00 - $580 zone. On the lower side $550.00 is the initial support with $542.80 and $534.00 as the key short term supports.
SILVER
Silver targets $1080 and $1110. There is an initial support at $1018.00 and $1008.A consolidated fall below $1008 will result in $994.00 and $968.00.
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