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-- Posted Friday, 29 June 2007 | Digg This Article

EXPECTED TRADING RANGE
GOLD AUGUST  -- $647.20 -- $657.00	SILVER  SEPT   -- $1238.50 - $1277.00
GENERAL MARKET CONDITIONS
Crude oil prices have risen from $50.0 a barrel to $70.0 barrel in the first six months of 2007. That’s a return of 40% in the first six months or 80% annualized. In developed markets equities and treasuries are not giving such high returns. Gold and silver and other base metals have given a return of over 10% in the first six months. Commodities and energy are the future of global investment. The amount that is being invested in commodities is peanuts as compared to equities which should catch over the coming years. There are concerns of boom to bust scenario. Excess leverage in any financial instrument not just commodities will be a cause of trouble. While investing in commodities one should be diversified. There are soft commodities corn, soybean, lumber, wheat, sugar. Sugar and wheat in my view is the best long term investment and that it is the right time to enter. One should rather wait for some time before investing in corn or soybean. Copper and other base metals there is excess leverage and that a ten percent tumble can happen anytime if strike by mine workers are over. Base metals are also an excellent long term investment but would rather wait for a correction. Gold and silver one can invest in small quantities at the current levels.     June has been a volatile month for precious metals and foreign exchange markets. The 10 year yields crossing the fiver percent mark and the bear sterns crisis resulted in sell off in bonds and precious metals. This resulted in gold and silver testing key major technical supports. Yen weakened over 124.0 against the US dollar. Carry trades ruled every market and were unnerved by verbal intervention by the swiss central bank (SNB) and direct intervention by the New Zealand Central Bank. In the end equity markets are firm, gold and silver are slightly weaker but over the short term key technical supports. Crude oil was the best performer while natural gas and Nickel was the worst performer in June. Base metals are firm driven by robust global growth and ultra low global inventories. This was the short summary of June.   The Fed kept the benchmark U.S. interest rate at 5.25% and stressed in new language that inflation is the greatest risk facing the economy. Readings on core inflation have improved modestly in recent months and that the economy is likely to continue to expand at a moderate pace over coming quarters. As expected the Fed has not given any clear direction on interest rates and that once again markets will be glued to further US economic numbers and bet on interest rates future. Once again the Fed is caught between the devil and the deep sea. Crude oil prices are probably in new range of $66-$80 as they edged past $70.00 yesterday. Higher crude oil prices will keep inflation firm and that higher base effect may not be able to lower inflation. Further a weaker US dollar also adds to inflation. If the Fed raises interest rates US growth rates will slow and moderate which the Fed the would like to avoid. In our view if crude oil prices crate a new historical high in 2007 then the Fed will be forced to raise interest rates in October to December quarter only to cut the same in March next year.  Carry traders have bounced back with a vengeance after just one day of sell off. In the third quarter carry traders will rule which is result in firmer gold and silver prices and a weaker US dollar and yen. In the third quarter bank of Japan may not raise interest rates, bank of England is expected to raise interest rates while the European Central bank will remain on the sidelines. Interest rate differentials will be negative for the greenback as well as the yen. The risk for carry trader unwinding is a fifty basis point rate hike by bank of Japan (which is highly unlikely), crude oil falling to $60.00 and central bank intervention. One should expect higher volatility in the upcoming quarter as summer trading volumes will dip and investors will remain on the sidelines. Low risk investors should buy gold and silver call options for December and January in whatever the dip we get in July or August.
COPPER -- SEPTEMBER FUTURE
Copper needs to float over $331.60 to prevent further losses to $327.30 and $321.30. $307.60 is the key medium term support. Resistance is between $340-$344.
Happy Profitable Trading & Have a Great Weekend.
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-- Posted Friday, 29 June 2007 | Digg This Article

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