The current slide in gold and silver as well as global stock markets is just a short term cyclical bear rally driven by expectation of higher global interest rates, higher treasury yields, a stronger US dollar and reduction in liquidity. Gold August future fell to a low of $628.40 while silver May future fell to a low of $1169 in Asian trade as the sell off in the Asian equity markets continue for the third consecutive day.
Over the next two to three weeks a bottom should be formed and thereafter gold, silver and stock markets will rise. Failure of Euro to break 1.30 has resulted in de-hedging by the carry traders which is also one of the prime reasons for the sell off in gold and silver. The US dollar is still weak and all the interest rate hype will be settled sooner than later and the greenback should once again start its weaker journey. The US dollar is also gaining as the demand from various central banks of emerging markets, towards foreign exchange reserves diversification has also slowed down. The US has a high trade deficit and is dependent on foreigners to run its economy. If foreigners do not buy US treasuries then the Fed will have to print more US dollar bills or raise interest rates. If Fed continues to raise interest rates after June gold and silver will fall in the short term but should create historical highs in the medium to long term. If Fed prints more US dollar bills it will increase liquidity which will increase speculation in commodity and gold and silver will rise. In either case gold and silver are the winners and the current fall and further falls (if any) will provide yet another for long term investors to invest in gold and silver.
Crude oil prices over $70 a barrel is also supporting gold and silver. Markets are long in crude oil as everybody anticipates more hurricanes to hit US coasts near the Gulf of Mexico. Despite all the progress made in technology it’s still difficult to predict when and where nature will strike with all its fury. The proposed Russian oil exchange is expected in early July and crude oil will be billed in Russian roubles. The US dollar will get another competitor apart from the Euro. The US administration is trying to prevent Iran from switching to Euro for its crude oil billings and therefore the nuclear drama. It cannot stop Russia from doing so. End result gold and silver will rise in the medium to long term.
Overall sentiments are bearish and more and more retail as well as intra day traders are selling first and buying later. This is another signal that the cyclical bear phase in gold and silver will end sooner than. History suggest that very few retail investor ‘s make money in speculation over five year period. For the day gold and silver will be volatile. It’s still preferable to buy at key technical support levels.
GOLD
Gold needs to hold $609.65 on closing basis till Friday else expect a slide to $588. The 100 day MA at $600.10 will be only theoretical. On the higher side $642.20 is the initial resistance with $654.90 as the key short weekly resistance.
SILVER
Silver needs to close over $1198 on Friday expect a slide to $1030- $1040 next week. On the higher only a daily over $1220 for two consecutive days will result in further gains to $1277 and $1330. The 100 day MA at $1119 will be of theoretical purpose.
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Prepared By Chintan Karnani. Web Site:www.insigniaindia.com
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