Gold April future reached a high of $568.60 and silver may futures reached a high of $1094.00 before settling lower at $1089.50 and $567.40.Gold rose on comments from a Bank of China official said that the country should use some of its vast foreign currency reserves to buy the precious metal. Foreign currency reserve diversification away from the US dollar will continue in 2006 as more and more countries with huge forex reserves get worried over the state of US trade imbalances. The US wants to label China for all its economic woes and has stepped up pressure on Beijing to revalue its currency, boost domestic demand and move to reverse the swelling $201bn US trade deficit with China.This US trade imbalance will take months or years to be within manageable limits. The end result is that gold and other precious metals will rise.
Silver is rising on ETF news and will continue to do so till the ETF is listed. Even the promoters of the ETF will not like to see a sustained correction in silver prices as it will take the fizzle from the ETF. They will try their best to ensure that silver prices remain firm and not get bogged down by bearish factors. Silver does not need billions, silver prices can also be manipulated using a small investment.
MCX silver may future rose to a new high of INR 15694, gold April futures also posted a new high of INR 8247. Most of the traders are long in gold and short in silver. A large number of gold long positions are being rolled over to June futures. In silver short covering has started. Even those who were short silver at INR 15000 are now thinking of squaring their positions. In our view short sellers of silver are waiting for the Fed meeting to be over and if silver prices do not fall tomorrow, we should see some huge short covering.
We have the Fed meeting today. The post comments will once again be relevant. There are also other economic news which will add to the volatility. The Iran and geopolitical factors for once has been ignored by the markets.
GOLD
Gold targets $575 - $580 zone but needs to hold $563.40. On the lower side $554.10 is the initial support with $547.80 as the key short term support.
SILVER
Silver needs to break $1100 and $1120. Silver has formed a higher support base at $1040.00 and as long as $1040 holds on closing basis the downside is limited. A consolidated fall below $1040 will result in $1018.00 as the next support levels.
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