A great week for the precious metals bears as well as base metals bears and they have been falling throughout the week. Over the past two years bears upper hand over the bulls have been rare and few. But whenever they gain the edge, they gave shivers to the traders as well investors as they have been supported by the force of gravity. I have been writing off and on for the past two years on ways and means of ensuring the capital intact when there is a one way traffic and one is stuck floating against the tide. If there is no capital to trade, how can you trade. Here is another strategy to ensure that loss is minimized. Support “Rahul” purchased gold june at $672.80 on Tuesday. Gold June has fallen nearly $20. In order to minimize the losses, Rahul has two options. (A) Use stop loss (B) Trade the other way round i.e., to do another trade and sell first and then buy. In this case Rahul could have sold gold June at $668, since the key technical support for gold June is at $657.40. rahul could have exited at $657.40 and made a profit of $10.60. His net buying cost of gold June has come down $672.60 to $662.20. If gold in a bear trend then rahul will continue to use a sell first buy next strategy. Ultimately rahul will be in a profit in five to seven trades. Now take the other way round. Rahul after buying gold at $672.80 sells at $668 and gold rises to $680. Rahul’s buying and selling gets squared off and his loss is limited to $4.80. Please note that this is just a hypothetical example, the results in actual trading conditions will vary depending on market conditions and other factors.
Today my worry gold and silver is not from the base metals side but from the equity markets. Federal Reserve Chairman Ben S. Bernanke issued a double-barreled warning on the U.S. economy, saying the housing market will continue to struggle and the Fed sees ``significant risks'' in the leveraged-buyout boom. He further said that curbs on subprime lending ``are expected to be a source of some restraint on home purchases and residential investment in coming quarters.'' And he said the Fed is ``beginning to look at'' what he called ``the risks that are associated with working with private-equity firms.'' If the after effects of US housing sector effects US equity markets and they fall, then precious metals will also fall initially due to liquidity risk. Base metals are showing signs of a bottom, though further fall cannot be ruled out.
GOLD -- JUNE FUTURE
Gold needs to close over $657.40 to prevent a fall to $646.00 and $631.10 over the coming weeks. On the higher side only a break of $663 will result in gains to $674.
SILVER -- JULYFUTURE
Silver needs to close over $1272 to prevent a fall to$1237. On the higher side $1314 is the initial resistance with $1332 as the key resistance.
Happy Profitable Trading
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