Report released by the International monetary fund (IMF) on world economic outlook suggests that global growth may top out in 2007 and thereafter fall. Global growth is expected to moderate to 4.90% in 2007 and 2008, some ½ percentage point slower than in 2006. In the United States, growth is expected to come down to 2.20% this year, from 3.3 percent in 2006. China’s growth is projected to remain rapid in 2007 and 2008, albeit a little below the torrid pace in 2006, while India’s economy should also continue to grow rapidly. Commodity-rich countries should continue to prosper. If commodity rich countries prosper, then commodity prices will remain firm, suggesting higher copper and crude oil prices. The report also showed concerns for protectionism. How does protectionism takes is path will remain to be seen however gold and silver be benefit in the long run on fears of the same.
On the currency markets, the report said that market-led movements in real effective exchange rates could potentially play an important supportive role in the adjustment of global imbalances. Currency depreciation could help to contain the output costs that may accompany the demand rebalancing needed to lower current account deficits by encouraging a smooth shift in resources across sectors. That concerns about “elasticity pessimism” that U.S. trade flows are unresponsive to real exchange rate changes are exaggerated, consistent with the view that a real effective depreciation of the dollar over the medium term could contribute to reducing the U.S. current account deficit. The report is also bearish on the US dollar in line with markets expectations. However Asian currencies (except the yen) have gained significantly against the US dollar over the past few years which has resulted in rising current account deficits in these nations. It remains to be seen as to what will be tolerable level of gain by the Asian central banks so that exports of these nations do not take a hit. Even for the Indian Rupee, the RBI’s stance is a bit confusing. The RBI prevented rupee gains from October 2006 to February 2007, then all of a sudden they let the rupee appreciate to control inflation. This will result in further rupee gains against the US dollar over the next few months, but could depreciate quickly if there is withdrawal of flows from emerging markets and monsoon rainfall are inadequate.
Gold and silver are volatile but finding buyers at lower levels. The European Central bank meeting and the G7 meeting over the weekend could set the direction for the US dollar as well as metals for the rest of the month.
GOLD -- JUNE FUTURE
Gold needs to break $690 - $692 zone for $700. $673.60 is the initial support level with $663.10 as the key support.
SILVER -- MAYFUTURE
Silver needs to break $1412 for further gains to $1460. On the lower side $1354 is the key support and a fall below the same will result in $1330 and $1305.
Happy Profitable Trading
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