January has been a volatile month. Gold and silver have risen. Copper and zinc have fallen while crude oil futures recovered from the fall below $50 to near $60. It was a technical trade in January in gold and silver and key long term as well as short term supports were held by gold and silver suggesting a retest of 2006’s highs over the coming months. Indian gold exchange traded fund (ETF) is expected to be launched soon and markets are upbeat that the same will further increase gold demand from India.
US dollar gained but failed to make major inroads the major currencies on interest rate differentials. US economic growth in December beat street expectations which prevented the US dollar from a collapse. However it was the sterling which was the star performer in the foreign exchange markets which was supported by the interest rate hike by the bank of England. The Yen weakened as the interest rates were not raised by the bank of Japan due to inconsistent Japanese growth. Weaker yen issue could be raised in the G7 meeting next weekend by the Eurozone officials as it reduces their exports to Japan. Global central banks are trying to ensure that their currency does not appreciate significantly against the US dollar, Euro and Yen as it hurts the exporters of their respective countries. This will be witnessed all through 2007. Foreign exchange markets for the past eighteen months are the safest markets to trade as they are trading in a limited range. We expect volatility to increase as 2007 progresses.
The star performers of 2006, copper and Zinc are the worst performers in January. Markets can never move in a move way direction endlessly. There was bound to be correction which the investors did not realize. Investors in India who were long MCX copper march at INR 310.0 tried to average at lower levels only to exit due to margin pressures. The same situation is with MCX zinc January and February futures. If ones long trade is going against them, then averaging is recommended only when a bull trend is formed. There are traders in Indian who tried to average MCX copper on every INR 10 dip when they were long at INR 310. This strategy backfired and they had to exit at INR 260. This increased the loss. The best strategy is to keep on trading in such a way that one keeps on getting small profits in the same commodity and exit when there no loss, depending on market circumstances. Copper and Zinc are fundamentally bullish and should rise significantly in February and March as demand picks up and global inventories fall.
Crude oil is supporting gold and silver as it rose over $56.0 a barrel. Markets will be looking forward to the Fed meeting and other US economic number for direction. However any major gains in the US dollar will be offset by gains in crude prices. The key short term as well as long term supports have been held by both gold and silver which will result in the bullish trend remaining intact.
GOLD -- FEBRUARY FUTURE
Gold needs to break $650-$660 zone for $690. On the lower side as long as $636 holds on closing basis the downside is limited. A consolidated fall below $636 will result in $628.
SILVER -- MARCH FUTURE
Silver needs to break $1370-$1380 for further gains to $1425. On the lower side as long as $1305 holds on closing basis the downside is limited. A consolidated fall below $1300 will result in $1252.
Happy Profitable Trading
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