I was asked yesterday why gold and silver are under-performing base metals inspite of a weaker US dollar. The simple reason is that there is change in short term investments from gold and silver into foreign exchange markets and base metal markets which are giving higher returns. After nearly two years of wait foreign exchange trading have picked in April to near record levels. Most of the traders were bearish on the US dollar and were betting heavily on the same. US dollar bears made significant losses in 2006, however in 2007 they have recovered all their 2006 losses and are in the green. Foreign exchange traders who had switched to commodity markets earlier have moved back.
Copper had a technical break out on expected mine strikes in Indonesia. In 2006 copper was buoyed by mines strikes and the same has re emerged in April. Mine strikes by workers in different mines could last into November, 2007. In our view mine worker strikes are induced my mines owners to jerk up the prices as they know that robust global growth will continues into 2007 and that Chinese insatiable demand for copper will remain on course. As long as comex copper near dated future holds $354, copper is headed for $400 and $425.Comex copper May future is expiring this months which will result in short covering demand and options related demand.
Gold and silver are firm on the back of a weaker US dollar and higher base metals prices. A change in the direction of any of the two will adversely affect prices unless there is a technical break out.
GOLD -- JUNE FUTURE
Gold targets $700 and $730 as long as $677.30 holds on closing basis. A consolidated fall below $677.30 will result in $663.20 and $659.00
SILVER -- MAYFUTURE
Silver targets $1474, $1537 as long as $1370 holds on closing basis with $1354 as the key short term support.
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