A combination of lower crude oil prices and a expectations of benign inflation resulted in gold and silver getting a technical breakdown last week. August, historically has been a subdued month for gold and silver. In August volumes have been way below normal due to thin liquidity conditions. Global equity markets are firm while the US dollar is trading in a range against the major currencies.
China last week raised interest rates and there was wider trading range in the yuan as the Chinese monetary officials try to cool their economy. Chinese growth a is an export led growth and sustained higher crude oil prices will start to show on global growth which will affect the Chinese growth. So the Chinese authorities are trying to cool down their growth, ensure that there is no over capacity. Indian growth story is just the reverse of China. It is a domestic demand led growth story with the services sector also a contributing to major share of growth. India is trying to ape the Chinese model of manufacturing led growth and vice-versa. If both China and India are successfully able to ape each other, they will still be able to maintain their current growth rates in the coming years. Demand for base metals as well as precious metals will rise from these countries. The rise in copper, gold, silver, and other are here to stay. But volatility will also rise.
In Indian according to our information there are huge long positions in MCX October gold future between INR 10200-INR 10250, INR 9850-INR 9900, INR 9650-INR 9700. Retail investors are sitting calmly on these open positions on expectations that gold will rise. In the medium to long term gold will rise. However gold is in short term bearish zone and this week gold could test the short key term supports of $609 ad $586.50. If gold falls below $586.50, there will be panic among retail investors in India and the some above long positions could get squared off.
The bearish factor for gold is fall in crude oil prices, gains in US dollar and fall in base metal prices. The Iran issue and Israel raids in Lebanon have unaffected the markets but could catch the fancy if crude oil once again starts to rise. Its two weeks before the US and European summer vacations comes to an end on 4th September and one needs to wait for a bottom to be formed before investing in gold. Silver is an industrial cum precious metal and should outperform gold in annualized gain terms.
GOLD – DECEMBER FUTURE
Gold needs to hold $619.20 on closing basis to prevent a slide to $595.0. On the lower side $628.80 is the initial resistance with $635.50 and $643.40 as the key short term resistances.
SILVER – SEPTEMBER FUTURE
Silver faces resistance at $1224 and $1237 with $1259 as the key weekly resistance. On the lower side $1188 is the initial support with $1162 as the key weekly support.
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