Gold and silver are feeling the North Korean heat as it rose to a high of $632.50 and silver September future rose to a high of $1133.50. Gold and silver rose after the Japanese government said North Korea fired missiles over the Sea of Japan. Chief Cabinet Secretary Shinzo Abe said Japan will make a ``stern protest'' as the launch ``is a huge security concern'' for the country, which has joined the U.S. in calling for the communist nation to abandon its nuclear weapons program. North Korea has told Japan that any move to impose economic sanctions would be considered a declaration of war. Apart form the North Korea issue, the Iran issue has surfaced after a gap after Russian President Vladimir Putin urged Iran to accept the international proposals to shape the future its nuclear programme, but said he did not expect Tehran's answer before the G8 summit later this month. Iran, which has repeatedly said its nuclear program is for peaceful purposes only, has snubbed calls for a speedy response to the proposals, insisting on giving a reply in August. Gold and silver will be more impacted by changes in geopolitical risk due to its safe haven status than other factors.
Commodity markets specially gold and silver are not interest rates sensitive. Gold and silver will soon be delinked from the US dollar and other bearish factor. Hey but do not expect another six month one way northward run. This time there will be technical corrections which will be a part and parcel of the long term bull rally. The current global inflation is crude oil and commodity prices induced. Crude oil prices over $70.00 a barrel is here to day with the possibility of $84.00 if there is another sister of Katrina or Rita in the Gulf of Mexico. Global inflation is close to a ten-year high and is likely to rise further into 2007.The culprit is the unsustainably high level of liquidity which is also the key factor for the current rally in commodities. Gold and silver are the best hedge in a every rising global inflationary environment.
Higher crude oil prices is affecting global demand as people spend more on gasoline. China’s imports of base metals have declined sharply this year.Despite the recent correction, metal prices remain extremely high as compared to average prices in 2005, copper is currently 92% higher, aluminum 29%, nickel 45% and zinc 119%. The key factor is speculation behind the base metals rally. If you have less free money or surplus printed noted by central bankers obviously base metals prices will fall. If there is a sharp reduction in global liquidity, as central banks get haunted by the ghost of inflation which they created over the years base metals will fall. However gold and silver will remain resilient to the future correction in base metal prices.
There is lot of hype on each and every US economic number after the Fed meeting. Is it worth looking at each and every one of them specially the non farm payrolls this Friday? Or are the CPI and PPI numbers are numbers no more relevant? Well its difficult to scan the mind of Fed chairman Ben Bernanke. He will give a preview of the Aug meeting when he presents his semi-annual monetary policy testimony on July 19. The equity markets as well as the treasury markets are interest rates sensitive. Gold and silver are not.
Unless the geopolitical risk subside, gold and silver will not fall which could lead to a break out of short term technical resistances.
GOLD
Gold targets $638.40 and $676.80. On the lower side $613.40 and $602.60 are the support levels and as long as $602.60 holds on closing basis the downside is limited.
SILVER
Silver targets $1162 and $1246. On the lower side $1071 is the initial support with $1008 as the key short term support level.
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