Gold and silver are rising on the back of renewed hedge fund interest and short positions getting squeezed. Higher crude oil further contributes to rise in prices. Crude oil spiked to $64.00 a barrel on reports that OPEC had agreed an informal production cut. But Edmund Daukoru, Opec’s president, said that even if Opec reached an agreement to cut ahead of the cartel December 14 meeting, it would be difficult logistically to lower supplies before November at the earliest. Demand factors will prevent speculators from too short. The effects of a slowdown in US economy will be felt in the coming months and will be offset by higher demand India, China and other developing nations.
There is huge demand of gold in India this festival season. Lower gold and silver prices along with sharp rise in Indian stock markets have certainly boosted demand. According to our estimates gold jewellery demand over the past one week has been so high thatsomething which has not been witnessed over the past two years. Indian have seen gold prices over INR 10,000 so they are happy with gold prices at INR 9000-INR 9100, hence the increase in demand. If gold prices rise sharply demand will fall marginally.
Gold production at South Africa’s South Deep mine is expected to decline by almost 60 per cent in the second half of the year due to damage caused by a recent fire. Output is forecast to fall to 111,239 troy ounces in the second half of 2006 from 261,558 ounces in the same period last year. Global demand for gold will rise over the coming months and year and unless new mines are discovered, demand pressures will prevent any long term breakdown in gold prices.
Natural gas prices were weaker after the release of the latest US weekly inventories data which showed a 77bn cubic feet increase in stocks, slightly below market expectations. The continuing inventory rise means gas in storage is on track to reach 3.3 trillion cubic feet by the end of October, ensuring plentiful supplies even if there is prolonged cold winter weather. In MCX natural gas future, a large number of traders are long at higher levels. MCX natural gas futures are bearish, but should bottom out soon. In the event of any news of a breakdown in diplomatic dialogue with Iran and cold temperatures arrive in US or Europe earlier than expected, natural gas will pare its losses.
We begin a new quarter next week and fund manager as well retail investors will start building new positions on their investments. December 2004 belonged to US dollar as it weakened to its record level. December 2005 belong to gold and silver and other precious metals. We will have to wait and watch what December 2006 has in store, however early October moves will definitely give us an indication what is store for gold and silver investors in December.
GOLD -- DECEMBER FUTURE
Gold needs to break $614.40 for $621 and $628. On the lower side the earlier resistance of $599.0 is now the support with $586.0 as the key short term support.
SILVER -- DECEMBER FUTURE
There is buzz of funds liquidation some of the long positions which has resulted in silver’s inability to hedge higher. As long as silver holds $1137 on closing basis downside will be limited. On the higher side $1192 is the initial resistance with $1220 and $1320 as the key short term resistances.
We Wish All Indian a Very Happy Durga Puja/Dusshera. Have a great holiday weekend.
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Prepared By Chintan Karnani. Web Site:www.insigniaindia.com
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