The upward momentum continues in gold, silver and copper. Gold June future rose to a high of $594.60 while silver May futures reached another high of $1174.00 on stronger investment demand, a weaker US dollar and geopolitical risk.
When there is a secular bull market, all the bearish factors are ignored while every bit and pieces of good news results in higher prices. I will compare the rise in gold and silver with the Bombay stock exchange (BSE). In 2003 April the BSE Sensex was trading in 2900 – 3000 band and over a period a period of three years it has already reached 11,300 with no signs of a pullback. Spot gold has risen from $348.85 to $588.90 over a three year period. Spot silver has risen from $4.66 an ounce to $11.72 on ounce a three year period. It’s difficult to comment as to when the bull rally will overheat and come to an end, despite all the calls for a correction.
Traders sometimes resort to short selling whenever a new high is created and when that high is beaten they resort to short covering which acts as a fodder to the bull market. Traders should play with the momentum and adopt a buy first sell later strategy with a stop loss and use the spreads and option market to hedge their risk. If there is any signs if the momentum fizzling out traders can take a reverse position. I am writing this because I have seen traders going short in silver MCX may futures at INR 15,000 as it was record high and later at INR 16,000, all to be squared of at INR 16,500- INR 16,600 and booking a loss. These are not prudent investment strategies in a secular bull market. Our view is that traders should be in the market and make gains instead of staying away from the market.
Traders and investors should keep in mind that speculative markets do not create wealth. It is the transfer of wealth from one from person to another. One’s profit is the other person’s loss. There will always be a double entry. Every trader and investor knows this but forget while trading. Another thing is that please keep a cap on your losses. There are traders in MCX who are short gold since INR 7,500 and have kept their positions open. I expect these traders to square when gold reaches a peak. One needs to be flexible and book loss and make a fresh trade to make for the loss.
Gold April futures are expiring today. There will be positions squaring as well as rollover. Momentum traders can continue with adopt a buy first, sell later strategy, but keep on booking their profits. If there are any signs of the momentum fizzling out, take a reverse positions with high stop loss.
GOLD
Gold targets $600.00 $620.00. The earlier resistance $578.10 is the initial resistance with $567.90 as the key short term support. Only a weekly close below $567.90 will result in $561.40 which is the key short term support now.
SILVER
Silver now targets $1200.00. A consolidate break of $1200.0 will result in $1226 and $1260 respectively. There have been times when momentum defies the technical picture and silver continues to go higher. The same is happening now. On the lower side a the earlier resistance of $558.00 is now the support with $1110 as the key short term support.
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