It’s a case of once bitten twice shy for gold as it had the biggest drop since August of 1993 in a single day. Gold June futures fell to a low of $637.00 (off the high from $675.00) before settling at $637.50. Silver and copper also fell but the fall was not historical. Silver future settled at $1251.50 while copper July futures settled at $363.90. A combination of higher margin calls from both stock exchanges as well as commodity exchanges that has resulted in the current sell off. There has been a reduction in global liquidity higher margin calls has affected both the volumes as well as prices. Retail investors as well as retail traders are not buying into gold and silver as they are nervous and are using every rise and gold and silver as an opportunity to exit. The double whammy in the form of renewed build up by of short positions in gold and silver is further contributing to the decline.
Over the next few months gold and silver should consolidate between May’s high and April low of $582.15 and $1152 before the next leg higher. Traders will be looking forward to some positive news to boost up gold and silver. Cyclical factors will result in less demand for gold and silver. Mr.Ben Bernanke’s stance on US interest rates will also be the key for the movement in gold and silver prices over the next three to four months. The Soccer world cup in Germany will also result in trading volumes coming down in June. In the short term there could be some further correction if there is a technical break down. However on major price declines physical dealers will start hoarding gold and silver, in India as well as globally.
The long term investment levels are nearing. On any major dip, the risk to return ratio will be clearly in favour of the buyer. It’s the second week in a row that gold and silver prices have declined after fifty two weeks of price rise. This is a part and parcel of a long term bull rally. The roaring of US president George Bush on Iran, Chinese economy and other global issues used to support precious metals prices. Now he as also lost his energy in the summer heat and is keep a low profile for the time being. Once Mr.Bush starts quibbling on Iran, passing the buck on China for all the US economic woes, gold and silver will rise.
GOLD
Gold needs to hold $631.80 on closing basis to prevent further losses to $609.65 and $588. On the higher side $654.90 is the initial resistance with $673.90 and $693 as the key short term resistances.
SILVER
Silver needs to hold $1188 on closing basis to prevent further losses to $1160. On the higher side $1266 is the initial resistance with $1308 and $1330 as the resistance levels.
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