Investment in gold and silver rose to hedge against a US slowdown. We have been mentioning all through that the past three years that the prime reason for the rise in gold, silver and other precious metals is that the world is slowing moving away from a US dollar standard to a gold standard. The US dollar is the world reserve currency and is the standard for global trade. Crude oil is billed in US dollars. US dollar forms a major portion of foreign exchange reserve of most of the central banks. There is a reduction in US dollar billing of crude oil, central bank diversification of foreign exchange reserves will be into other currencies and gold. The share of US dollar in global trade is slowing falling. Even in India, exporters are increasing their billings in Euro and other currencies as the Rupee continues to appreciate. More and more countries are resorting to bilateral trader where the currency used will be other than the US dollar. Ultimately it’s all about the US dollar for long term movement in gold, silver and commodity prices. Before the First World War, gold was the global standard for trade and we are moving towards history but the pace is slower than a snail.
I was being asked by one of my clients that if there is reduction in global growth in 2007 and further, the demand for gold and silver will fall which will result in prices topping sooner than later. There could be short term to medium term correction in gold prices as a global slowdown could reduce global liquidity as well as demand. At the moment Japanese are the major liquidity contributors, Fed could join Japan in 2007. Indian Chinese economies are growing and growth rates will average over 7% in the coming few years. Indian as well as Chinese demand will always there. The only negative factor for gold could be indirect central bank intervention to curtail gold prices.
So far so good for gold and silver this week and this Bull Run will continue. In MCX there are huge long positions between INR 9800 – INR 10200 in December future which have yet to be squared off by long term retails investors. Investors are yet to square off their silver December long positions over INR 21000.It’s only the rupee appreciation which is preventing gold and silver prices from rising in India. A stronger rupee is offsetting the rise in spot gold prices.
The worst has been factored in by the markets for the October payroll numbers tomorrow. In our view the gains in the US dollar will be short lived. However crude oil prices trading in $57-$60 a barrel has reduced the rise pace of rise in gold and silver. Volatility will also rise over the next two days.
GOLD -- DECEMBER FUTURE
Gold needs to break and close over $638 for two consecutive weeks for an assault at $700 else there will be sellers between $630 - $645. Support at $614, $609.30 and key support at $601. Resistance is at $624, $629.20 and key resistance at $635.10.
SILVER -- DECEMBER FUTURE
Silver needs to break and close over $1290 for $1322 and 1408. On the lower side $1228 is the initial support with $1199 as the key support.
Happy Profitable Trading
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