Today is 7/7, the day of London blast. It is also one of the memorable days for gold and silver. Spot gold rose to a high of $429.05 after the London blast and closed at $423.35. Spot silver rose to a high of $7.05 to close at 6.97. This is an excellent gain year on year. But very few traders may have held on to their investments. In fact gold beat our forecast and we had to revise it, silver was still in line. Gold and silver had more than 50% gain year on year and this performance could be repeated by 7/7 of 2007. I am optimistic considering the unending geopolitical risk, unstoppable crude oil prices.
Higher crude oil prices is the path to self induced global recession over the coming years. Copper, zinc and other base metals prices as well as crude oil are rising as if there will not a single ounce available over the coming year. New capacities in base metals are coming up by the year 2009 and if there is slowdown in global growth by 2009, it will be a case of excess supplies and the base metals prices will fall like a pack of cards. Central banks will not able to do anything if there is a global slowdown as the central banks only weapon of money supplies and manipulating liquidity will be rendered useless in the long term. However gold and silver will rise if and when there are signs of slowdown in global growth.
At the moment every body is very optimistic about global economic growth. The price movement in most of the financial markets be it equites, treasuries, or precious metals and base metals, do not reflect fundamentals. It’s as if too much money chasing to few goods. The various financial exchanges it seems have run out of innovations to introduce more and more paper traded instruments. The base place of invest is gold and silver stocks, exchange traded funds and obviously physical gold and silver. Despite the so called high price even if one invests in gold and silver today the year on year return will outstrip most of the financial instruments of the same risk category.
Iran, Korea, Israel all are supporting crude oil prices gold and silver prices as well as crude oil prices. Further today is weekend which support gold and silver prices. If the June non farm payrolls comes below 1,50,000 the gold can rise to $676 and silver to $1280 and Euro to 1.30-1.31 today. At the beginning of 2006 I had mentioned that in 2006 one needs to be a US dollar bear and a commodity bull and we maintain this stance for the rest of 2006.
GOLD
Gold targets $639.40 and $676.80. On the lower side $618.80 and $613.60 are the support levels and as long as $602.60 holds on closing basis the downside is limited.
SILVER
Silver targets $1246 and $1344. On the lower side $1110 and $1071 are the initial support with $1008 as the key short term support level.
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