The trend is back to where 2006 started. Commodity prices have started rising once gain, specially base metals (other than copper), global equity markets are at multi year highs, bond price are trading in a range and lastly the US dollar has started to fall against the major currencies. The next thing to watch out is whether euro is able to edge past 1.30 over the coming weeks. Euro has failed to break 1.30 against the US dollar in 2006 and markets will be keeping a close eye on 1.30. If euro breaks and holds 1.30, gold could edge past $640.
Gold prices are being pushed and pulled by movements in crude oil as well as the US dollar. Economic numbers from US suggest that the Fed will keep maintain status quo on interest rates for the next few months. The European Central Bank (ECB) and well as the Bank of England (BoE) will raise interest rates for one more time in 2006. The US dollar will stand to loose on interest rate competitiveness against the major currencies and should start a renewed phase of slide.
A bit on the real estate investment scenario in India. In New Delhi, I have come across small garment exporters, retail shop owners who have cut down their investments in their business category and investing in real estate. When I asked them the reason for the same, their answer was that real estate is offering around 30% annualized return in India while returns from their business is half of real estate returns. People who are working are also taking loans and making investments in real estate due to ever rising prices. Clearly there is huge element of speculation in real estate prices of India and more will come. Real estate according to me is a competitor to gold, silver and commodities in the investment world as both as hard assets. Real estate prices cannot rise forever, just like we had small correction in gold and silver. In India there is a huge lack of awareness of investment in commodities. If even a small percentage of investment shifts from real estate to commodities in India, the amount in value terms will be huge in the coming months. Gold and silver should be headed northwards only.
The US dollar as well as crude oil prices will continue to dictate gold and silver prices. In our view both have formed a short term bottom. Short covering demand will also support gold and silver prices. The trend is bullish but volatility will also increase as the week progresses.
GOLD -- DECEMBER FUTURE
Gold needs to break and hold $614 for further gains to $634. On the lower side $595.10 is initial support with $582.20 as the key support.
SILVER -- DECEMBER FUTURE
Silver needs to break $1228 for $1290. On the lower side $1199 is the initial support and $1182 and $1157 as the key weekly supports.
Happy Profitable Trading
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