There has been a silver lining to the previous week as silver outperformed gold for once. Silver September future rose to a high of $1265.00 while gold December future was relatively steady as it rose to a high of $666.00 in the previous week. Sterling has one the highest weekly gains in more than year after the Bank of England raised interest rates.
It’s once again the Fed week. Markets are divided over the interest rate decision. Gold and silver had risen sharply after the last Fed meeting of nearly a month ago. Whether the Fed raises interest rates or not gold and silver will continue with its overall bull run. There could be some technical corrections which will provide buying opportunities.
For the rest of 2006, we do not expect a one way traffic in gold and silver like we had from November 2005 to mid may 2006. Overall bullish trend will remain intact. However volatility will increase and there will higher two way movement. After the Fed meeting tomorrow the suspense on global interest rates will be over and there will be increase in speculative activity in gold and silver. Volumes will increase as summer trading nears an end.
The diplomatic failure in handling of Israel – Hezbollah issue is one darkest patch in US president George Bush’s political life. George Bush’s urge to control global oil rich nations on pretext of nuclear issue has backfired. Iraq is in a mess and so is Lebanon. The clashes has united global Muslim community and the aftermaths of the innocent deaths in Lebanon will be felt in the upcoming US state elections. People in US are already suffering a weaker US economy, higher interest rate and ever rising gasoline cost. The value of the US dollar will erode further. Gold, platinum, silver and other precious metals are the best hedge against such an economic scenario.
Global crude oil are pricing and there seems to be no short term reprieve from the same.Central banks are very vigilant about interest rates and are rising interest rates. History suggests that global central banks have raised interest rates more than justified in order to curb inflation. Higher interest rate pinches every strata of the society. In India there is clash between the Reserve Bank of India (RBI) and the united progressive alliance (UPA) government as the UPA government asked state run banks not to raise the benchmark prime lending rates (PLR) even after the RBI raised the reverse repo rates.The move is to ensure that the interest rate does not destabilize the Indian growth story. Other countries may follow the same. Higher and persistent higher crude oil prices can have catastrophic effect on global economy further supporting gold and silver prices.
GOLD
Gold targets $672.00 and $692.00 but needs to hold $658.50. On the lower side $652.50 is the initial support with $642.00 and $637.10 as the key short term support levels.
SILVER
Silver will target $1302 and $1349 as long as it holds $1192 on closing basis. Only a close below $1192 will result in further losses to $1139 else the downside is limited. The earlier resistance of $1237 is now the initial support.
Happy Profitable Trading
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