-- Posted Monday, 22 May 2006 | Digg This Article

GOLD	SILVER
COMEX GOLD JUNE FUTURE -- $654.00	COMEX SILVER JULY FUTURE -- $1227.00
EXPECTED TRADING RANGE
GOLD -- $623.90 -- $696.00	SILVER -- $1169.0 - $1380.50
COPPER AND CRUDE OIL -- EXPECTED TRADING RANGE
COPPER JULY -- $316.00 - $368.40	NYMEX CRUDE OIL JUNE  - $66.40 - $72.20
MULTI COMMODITY EXCHANGE OF INDIA (MCX)
GOLD JUNE FUTURE/10 GRAMS	SILVER JULY FUTURE/KG
Rs.9,550 - Rs.10,200	Rs.18,200 - Rs.22,400
COPPER JULY FUTURE	CRUDE OIL JUNE FUTURE
Rs.316.80 - Rs.368.40	Rs.2,970 - Rs.3,400
GENERAL MARKET CONDITIONS
Gold, silver and commodities in general fell throughout the previous week after more than six months of continuous rise. There is hue and cry that the commodity bubble is over and that gold, silver and copper have topped out in the long run. Gold has risen 70% in a year time. Copper prices have risen more than 225% in less than a year. Other precious metals and base metals have also followed the trend. One week of fall and there is hara – kiri and bearish noises. Free gains (buying today and selling the week after at a much higher price) cannot continue for long. There will be corrections and the longer gold and silver rise the stronger will be correction in terms of price declines. This is the entertainment which a parabolic bull run provides to the traders and investors. The retail investors and jobbers take the maximum hit when prices slide. The rise in gold and silver also reflects the impact carry traders have on commodity trade.   Carry trades are a part of the excess liquidity which the various central bankers have created over the past few years through reduction of interest rates. There is a money, money flowing all over the globe but lack of investment avenues. Bank of Japan have been the greatest liquidity providers for the past fifteen years. This surplus money is bound to create asset bubbles. When these bubbles burst the effect is like a nuclear explosion in the financial market. The rise in gold and silver is not a bubble. The long term bullishness is here to stay. The world is moving away from a US dollar standard to a gold standard and in 2006 we are witnessing a transition period where the current kind of volatility in gold and silver is normal. It’s just the short term worries about higher inflation reducing global growth that is resulting in the current fall in commodity prices.   There are worries that a reduction in US consumer demand will negatively effect Chinese growth and that the Chinese economy could slow down. A slowdown in the Chinese economy will affect base metal price adversely. China is the world’s most populous nation. The Chinese government is also trying to cool its growth rate so that it does not overheat. It’s not that there are shortages of copper or zinc or Aluminum. There are unending strikes by mine workers in all parts of the world that is resulting in reduced inventories. Due to ever rising prices, speculators as well as end user have been hoarding base metals which has resulted in artificial reduction in global base metal inventory. The correction in base metal prices is just short term and the fall in peanuts as compared to the rise. Base metals as well as precious metals demand from India, China, Russia, Brazil, Eastern Europe will only rise in the coming months. There is a remarkable rise in the per capita income of these nations. Global economic growth is less dependent on US consumer demand at the moment than it was a few years ago. This also is transition period for global demand as well as global growth away from USA and developed nations to emerging economies like China, India and the rest. Long term fundamentals are intact for bullishness in base metals as well as precious metal prices.   The pace of rise of gold and silver was beyond imaginable levels in 2006. The current correction in gold and silver prices is the next best thing to have happened for a sustained long term rally. Geopolitical risk as well as inflation risk will not vanish overnight and so will the bullishness in gold and silver. There could be further correction in gold and silver prices which will provide an opportunity for long term investors to buy. The US dollar is expected to weaken further in 2006 which will further support gold and silver bulls. The only risk to medium term bearishness in gold and silver prices are that of peaceful settlement of Iran’s nuclear ambitions, a severe squeeze in global liquidity, Chinese economy turning out to be a “Boom to Bust” story, and a sharp fall in crude oil prices.     One needs to be patient and be prepared to buy whenever a bottom is formed in gold, silver and copper prices. Now is the time for jobbers to become long term investors. It’s also an excellent time to buy some far dated call options not just in commodities but also in equities.
GOLD
Gold has an initial support at $649.10 and a consolidated fall below the same will result in $638.70. The short term key support is at $631.80. Despite the fall I will still prefer to buy on dips with a stop loss of $20. The upside is open with $674 and $696 as the key resistance levels.
SILVER
As long as silver holds $1198 the downside will remain limited and a consolidated fall below the same will result in further losses to $1142. The upside is open with $1275 and $1330 as the key resistance levels. Despite the fall I will still prefer to buy on dips with stop loss of $50.
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prices of specific currencies, precious metals, base metals, or equity indices reflect the views
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-- Posted Monday, 22 May 2006 | Digg This Article

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