Silver had one of the best months in March as it gained $1.76 or 18% in just one month.Silver May future reached a record high of $11.94 an ounce in March. Gold gained just 3.78% in March with spot gold prices reaching a high of $589.65. Crude oil prices are also higher on expectations of crude oil ETF.
The past six months has been characterized by rising commodity prices, rising treasury yields and a range bound dollar. Rising commodity prices are clearly an indication of a changing investment pattern by fund managers as well as retail investors. Investors do not want to invest in paper instruments (Other than secured instruments like treasuries). They prefer something which is solid like gold, silver, copper etc. This is also a signal of a slow and gradual depreciation of the US dollar. In fact around 200 years back, a gold standard was applicable globally and not the US dollar. The US dollar came into prominence after World War I and came to be accepted as global standard more after World War II in which USA played a significant role. The rise of the US dollar was due to the road map devised by the US administrators to rule the world by ensuring that the power of their currency the US dollar.Euro came in and has challenged the US dollar to a certain extent and has reduced the share of US dollar in global trade in real terms. Gold is set to challenge both the Euro as well as the US dollar over the coming years. This phenomenon will not be visible to an average man right away. However it is visible to consultants like me and others who track commodity prices and global financial markets twenty four hours a day, three sixty five days a year.
In the short term there will be a correction in gold, silver and other commodity prices. Higher interest rates will be witnessed globally. The so called liquidity driven asset created global phenomenon will reduce. A reduction in global liquidation will not alter the long term bullishness of gold and silver prices. However different commodity prices will peak at different times. Copper prices should peak in 2007. Gold and silver prices should peak in 2008 or 2009.
In the next six months, interest rates in US will peak, Euro, Japan and other countries will raise interest rates. There will be signal that a soft landing of the US housing market has begun. Gold and silver demand will see a cyclical decline. These are bearish factors for gold and silver. The direction of crude oil prices will be key factor for every market. In 2005 we had the Katrina, Rita and other hurricanes. Rising global temperatures could result more hurricanes like Katrina, but nature does not tell when and where it will strike.Crude oil prices may fall to $55 a barrel and thereafter rise to $80 a barrel. Geopolitical uncertainties particularly Iran and Middle East, terror threats will affect commodity prices. There are the bullish factors. ETF’s etc are reflected in the current movement of gold and silver prices.
There are a large number of market moving economic news and Iran factors this week which will add volatility to the markets this week.The momentum is certainly bullish, but there will be profit taking and position re building as this is the beginning of a new quarter.
GOLD
Gold needs to break $595.00 -$598.00 for $611.20 and $618.80.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 $1258. 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 $1110 is the key support. Only a close below $1094.00 will result in further losses, else the downside is limited.
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