The movement is gold and silver was technical. Gold failed to edge past the 50% retracement from $534 to $730.0 while silver failed to hold on to the 100 day MA. The de-linkage between bullion and other financial markets was clearly evident. However fall in crude oil prices resulted in gold and silver prices falling too. The US dollar is steady after mixed US non farm payroll numbers. The weak headlines numbers was substituted by rise in hour wage rates. Wage inflation could result in Fed raising interest rates in August.
Physical demand is virtually non existent in India. A wholesaler in India who usually sells between 250-300 kgs on peak time is now selling between 20-30 kgs a day. It's a summer market and demand in gold and silver is more of investment demand. However physical dealers and retail investors are on the edge and if there are any signs of a sudden surge in prices of gold and silver they are ready to increase their inventory levels. Central banks and exchange traded funds (ETF) are also using the correction in gold and silver to add increase their reserves in gold and silver. Demand factor will continue to support gold and silver prices.
Iran, North Korea, Iraq, Israel and other related geopolitical risk is here to stay. Even crude oil prices over $70.00 a barrel is here to say. Markets are waiting for the hurricanes to come. These event risk will prevent traders from going too short. We continue to prefer a buy on any five percent declines.
Crude oil is rising and the crude oil producing nations are having a windfall. However crude oil will get a competitor. The competitor's are bio-diesel (which the Germans have the edge), ethanol, soybean, hydrogen, natural gas, etc. Ethanol blending has started and if globally there is a 5% blending of ethanol with petrol, there will be sustained reduction of 10% in global crude oil prices which is substantial. New technology will give crude oil a run for money. Expectations of hurricanes in the Gulf of Mexico is also supporting crude oil prices.
Technically gold and silver have room further gains in the short term. Gold needs to break and close over $639.60 for $676. Silver needs to break and hold the 100 day MA at $1158. Gold and silver have held their 200 day MA's over the past three years. As long as gold and silver hold their 200 day MA's of $556.30 and $998.50 respectively on weekly closing basis the downside risk remains limited. However the 200 day MA will rise over the coming weeks and there is a slight possibility that the 200 day MA could be tested in both gold and silver.
GOLD
Gold is trading in $620.00 - $640.00 range and needs to break $640.00 for $652.50 and $676.00. On the lower side $621.20 is the initial support with $613.60 and $605.70 as the key short term support levels.
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SILVER
Silver needs to break $1162 for $1192 and $1235.00. On the lower side $1110 is the key intra day support and a consolidated fall below $1110 will result in further losses to $1171.00.
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