Gold and silver had a better week as it rose after the Fed meeting. Gold December future rose to a high of $598.20 while silver September future rose to a high of $1149 before settling at $595.40 and $1131.00. The US dollar weakened as the stable interest rates in US are here to stay for the time being and economic numbers from US suggest that growth rates in US will either be maintained or fall. The Osama factor could temporarily add higher volatility to gold and silver.
Over the weekend I was trying to look into the reason for a potential gold breakdown, in light of a number of analysts forecasting the downside for gold between $480-$530. Our analysis has always been on the bullish zone as it based on the notion the world is moving away from a US dollar standard to a gold standard in the coming years. We are in a changing world economic scenario where global dependency on US retail demand for growth will reduce and shift towards Asia where higher employment is creating wonders for the most populous continent. In line with this, necessary shift in currency adjustments are also taking place. Investment portfolio’s are constantly churned not just by fund managers but also by various central banks, in light of long term bearish forecasts for the US dollar and fragile macro economic fundamentals of US economy.
Lack of investor confidence in commodity based hedge funds after the Amaranth losses. At the moment it is just Amaranth which has declared its losses, other can come up. If any more hedge funds declare commodity losses, there will be investor nervousness which could result in temporary withdrawal of from commodity based funds. If investors withdraw, there could be major selling by hedge funds.
Crude oil so far has floated over $60 a barrel. Gold and silver are tracking crude oil prices. If crude oil prices have a sustained fall below $60 a barrel and Opec does not reduce its production then gold and silver will also fall. However only in the event of a sustained slowdown in developed nations that crude oil prices will fall to $54-$56 a barrel. At the moment most of forecasts are of a global slowdown in 2007. Global population is rising. The per capita usage of global crude oil may fall but the numbers of users of crude oil are on the rise with passing of every second. Crude oil demand in 2007 will not fall significantly. It’s is the only the movement in speculative premium that is driving crude oil prices. Unless new crude oil replacing technologies such as bio Diesel, Ethanol, hydrogen propelled cars etc are implemented in a big way crude will continue to rise on fundamentals.
The bullish factors for gold are huge demand, a weaker US dollar and technical breakout.
GOLD -- DECEMBER FUTURE
Gold needs to break $598.50 to target $614.50 and $622.50. On the lower side $586.50 is the initial support with $578.80 and $566.60 as the key short term support levels.
SILVER -- DECEMBER FUTURE
Silver needs to break $1152 for $1220. On the lower side $1106 is the initial support with $1062 as the key short term support.
Happy Profitable Trading
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