Last week has gone down in history as the most memorable weeks in history of gold and silver. Spot gold fell to a low of $542.50 and spot silver fell to a low of $9.47 from the May highs of $730.50 and $15.26. The culprit global inflation and higher interest rates.Gold and silver fell in Asian trade after the late last hour surge on Friday. The US dollar has started the week on a positive note while Asian equity markets fell. Crude oil prices are under $70 a barrel.
The Chinese Gold & Silver Exchange plans to establish a 24-hour electronic trading platform and complete the transformation of the registered society into a jointly owned enterprise paving the way for a listing on the Hong Kong stock exchange. "I hope to launch the 24-hour electronic trading platform as soon as possible so that we can pull back the transactions which are now taking place outside the exchange," said Lee Tak- lun, after being named the newly elected president of the bullion exchange. The exchange also proposes to launch a real gold delivery system to boost turnover, he added. Explaining the low turnover of the bullion exchange, Lee said that since transactions are in Hong Kong dollars, trading is largely local. As for the proposed gold depository, which is expected to be located at Hong KongInternationalAirport, the exchange will cooperate with the government to bring it to fruition smoothly, Lee said. Good news for Gold and silver and they should further.
There are concerns that the current global growth rates of near five percent will fall in 2007 onwards. Historically global central banks have a tendency to over raise interest rates to control inflation and if their economies slowdown more than expected they cut interest rates. Interest rates hikes and cuts by central banks will continue in cycles over a period of time and global financial markets generally factor them. Interest rates cycles by central banks have an effect on short term as well as long term liquidity which in turn affects the pace or rise or fall on any financial market, be it gold, silver, equities, treasuries etc. The long term bullishness for gold and silver is intact. Ifthere is a severe shrinkage in global liquidity, the pace of rise of gold and silver down. It’s the speed/pace of rise which is very important for the medium term investor as well as long term investor. “Pace of Rise” is the daily rise, weekly rise, monthly rise of gold and silver which will determine the future return on investments in gold and silver. If the pace is slow then the short term investors will stay away. I do not see a $50 rise in gold every week. From now on gold will rise consistently at $5-$10 every week. Silver should rise at $10-$15 every week. This consistent rise should continue for the next 12-15 weeks and thereafter gold and silver could leap frog into space out of the gravitational force.
We tried to do a mini survey among bullion traders, jewelers and the common man from different parts of India over the weekend. The general sentiments is bearish in India and nearly all them are waiting for gold and silver prices to fall further before they start purchasing physical or future as the case may be. Even some of the large physical dealers in Jaipur, Chennai, and Mumbai expect gold and silver prices. It’s just a matter of short time when this sentiment will change to bullish and there will be remarkable jump in gold demand from India which should push up the prices. Recycling of old gold and silver is virtually over as investor’s know that gold under INR 6500 per ten grams is history now.
There is lack of market moving economic news. Market should see a technical rally and there will be two way movement. Its better to use call options and trade in spreads for higher gains and lower risk.
GOLD
Gold slowly needs to close over $585.60, $602.80 and $613.60 to once again start its bullish run. On the lower side $572.20, $566.40 are the initial supports with $537.90 as the key term support.
SILVER
Silver slowly needs to close over $1162 and $1246 to start short term bullish run.Support for silver is at $975.50 and $935.50 and key support at $872.00. Resistance is at $1041, $1071 and $1162.
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