Investor is not an idiot, specially after an indirect interest rate cut of half a percent. Fed has indirectly acknowledged that the US economy is in shambles and that it needs to give people free money so that consumer spending rises and growth rates are stable. Many of us blame the bank of Japan for the current debacle on financial markets as they have been following an ultra loose monetary policy. What is the Fed is doing now? It’s following the bank of Japan and could be doing the same for the next few months. Bank of England has been the best central bank as it stayed away from any kind of intervention. The US economy is nothing but a paper economy which can crumble anytime.
Interest rate outlook for the world has suddenly changed. We were expecting global interest rates to top out in 2007 and interest rate cuts in 2008.We expect interest rates to be uncertain in the next twelve months. The Fed will cut interest rates. European central bank (ECB), Bank of England (BOE) as well as bank of Japan may not raise interest rates in 2007 and that the BOE and ECB may cut interest rates in early 2008, if inflation remains stable at the current levels. ECB and BOE may raise interest rates once again after June 2007 to dry the excess liquidity. US presidential elections are towards the close of 2008. The Fed will try every trick it has to keep the consumer happy.
Global growth should moderate over a period of time. In our view global growth should top out in the second half of June, 2008 and thereafter a slow and steady decline in growth rates. Even the Chinese economy should top out after the Olympics in 2008. Base metals are the first thing when I think of slowdown in growth rates. Base metal prices will remain firm over the coming years, only the net speculative interest will keep on changing which will add greater volatility and reduction in the pace of gains.
We have been mentioning that the world is economy is moving away from a US dollar standard to a gold standard. The power purchasing power of the US dollar is falling and average incremental demand for US dollar has been on the decline. Gold has under performed other investment avenues and there are believers that treasuries are a better bet than gold as they give some of interest/yield whereas there is a holding cost in gold (physical as well as futures).
One should look at gold from liquidity and safety perspective. In the current slide in equities, some of the stocks have fallen more than twenty percent. Gold has fallen slightly over five percent. Instead of looking at the equity indices, one should look at the particular stock and compare that with gold. Gold has fared better than equities in a falling market. One should have a small percent of investment in precious metals.
Gold and silver will be volatile for the day. Key medium term technical levels are holding will which will support prices. Until and unless metals fall below previous weeks lows, downside will be limited.
MCX -- ZINC AUGUST FUTURE (PRICES IN INDIAN RUPEE'S)
SUPPORT
RESISTANCE
S1
S2
S3
S4
R1
R2
R3
R4
119.10
121.80
123.40
127.50
132.50
135.20
137.40
141.80
MCX -- ZINC AUGUST FUTURE (PRICES IN INDIAN RUPEE'S)
Zinc gets caught between copper and lead. A bottom should be formed soon. 124.70 should be days bottom while it needs to break 141.80 to be in uptrend.
GOLD -- DECEMBER FUTURE
Gold needs to hold 400 day MA of $658.80 to prevent further losses to $650.0 and $644.0. On the higher side the earlier support of $668 and $676 are the resistances.
NYMEX CRUDE OIL --FUTURE
100 day MA of $67.16 is the key support. Resistance at $73.75 and $77.07
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