The sell on bond prices and subsequent rise in treasury yields has resulted in metals, and equities falling. Markets expect Fed to raise interest rates in December on back of higher inflation and stronger economic growth. The big question for the remaining of 2007 is which of the major global central banks will be the providers and which will be the squeezers.Central bank over the past few years have flooded the markets will cheap money at virtual zero interest rates in order to stimulate growth. Now central banks are withdrawing a part of the money by raising interest rates and other measures. In our view the Fed and Bank of Japan will continue to be the biggest source of global liquidity while other central bankers will be the squeezers. Bank of Japan raising interest rates even to one percent over the next six months will not kill the carry traders. US needs more than $1.50 billion to run its economy, other central bankers (except the bank of Japan) are diversifying their forex reserves away from the US dollar. Basically bank of Japan is printing more currency to fund US economy. The end result is we could mark the beginning of global uncertainty over interest rates which will push volatility in every market to historical highs. Gold and silver may not benefit immediately but will be the biggest beneficiary in the long run.
Gold and silver are not out of the woods yet but could see bounce if the US dollar gains. Crude oil, US dollar, bond yields will all add to the volatility
GOLD -- AUGUST FUTURE
Gold needs to hold $646.50 to prevent further losses to $641 and $633. On the higher side $659.10 and $663.50 are the key resistances.
SILVER -- JULYFUTURE
Silver needs to hold $1292 to prevent further losses to $1277 and $1254. On the higher side $1324 is the initial resistance with $1339 and $1354 as the key resistances.
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