Expectations that bank of Japan will raise interest rates and indication of a solution to Iranian issue has resulted in gold and silver trading with a softer bias. Gold August future fell to a low of $621.90 before settling lower at $626.10. Silver September fell to a low of $1093.00 before settling lower at $1111.0. Interest rate rise expectations by the Fed in August supported the US dollar.
Markets expect bank of Japan to raise interest rates this week. But there is still uncertainty over the same. If bank of Japan raises interest rates this week then we do not it to raise interest rates over the next six to eight months. This will be next best event for gold and silver. In the short term gold and silver could fall to $605.80 and $1040 but by December 2006 we expect at least $750.0 and $1650.0. Global interest rates hikes should see a top between and October and November and thereafter a period of stability in global interest rates will come. Stable interest rates will imply that gold and silver prices will rise on fundamentals.
This is a summer market and volumes in gold and silver is off the peak. Investors as well as traders are booking profits on every rise. July and August will be consolidation phase for gold and silver. A support base will be formed for gold below $600.00 and silver below $1040 and thereafter it will be a one way traffic from October onwards. Please do not think that since last year gold and silver started rising from October, this year they will also do they will do so. Financial markets have a tendency to do something new every year in the last quarter of calendar year. For the past eight to ten years it was the bank of Japan liquidity, which was the key driver in every financial market including gold and silver. Now this liquidity/free money will not be available any more. Further since there is higher global growth excess money will be used for purposes other than speculation or investments. Gold and silver will soon be de-linked from equities, treasuries and other forms of investments as they are hard assets and the future on global investments lies in hard assets and not paper assets like equities or treasuries.
China's trade surplus widened to a record $14.5 billion in June as exports surged, increasing pressure on the government to let the currency appreciate. The surplus widened from $13 billion in May. Export-driven inflows of cash have pushed China's currency reserves to $875 billion, the world's largest, and fueled an investment boom that threatens to strain the nation's resources and fan inflation. Who says the dragon is slowly. But there will be more pressure on China to let the yuan appreciate. Base metal may see a ten to fifteen percent correction from the current levels which should be the bottom.
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.
SILVER
Silver needs to hold $1110 to prevent a slide to $1071 and $1035. On the higher side the 100 day MA at $1158 is the key resistance and a break of which will result in further gains to $1192.
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