Gold and Silver Prices have been on a rampage for the past 6 – 7 weeks & seemed highly due for a slight pullback on the basis of RSI – the Relative Strength Index. Gold and Silver Charts are beginning to look a bit parabolic which indicate that Gold and Silver Prices are set to correct or consolidate in the short term. There can be repeat bouts of profit-taking & these ideally should be used for opportunistic bottom fishing or buying opportunities. Repeat bouts of small profit-taking will also ensure the continuation of the Gold and Silver Price Rally further ahead. Only a very sharp or a deep decline can demark a trend reversal. Gold is expected to rise to at least $1,855 in the coming weeks, with $2,200 on the horizon if supported with higher momentum & volumes above $1855 – The last Massive Rally Lap. The outlook for Silver & Base Metals is even better than as expected for Gold as explained below.
Gold and Silver Prices had a softer tone for much of the first half of the year due to a stronger US dollar, uncertainty about the US Fed’s policy and limited progress in the Eurozone. Some general soft profit taking hit commodity markets this week in the aftermath of last week’s US Federal Reserve’s announcement of the much awaited QE3. The last couple of weeks saw Gold and Silver rise aggressively as markets witnessed the ECB take an aggressive & unorthodox step of announcing an unlimited bond-buying program & the Fed later announced another round of Quantitative Easing (QE3) that will have an open-ended timeframe adding more & Un-limited liquidity in the US. The risk associated with “toxic” European debt means safe-haven demand for Gold and Silver as well as for the Base Metals. Meanwhile, the European Central Bank “will likely continue pumping money at the problem. With the QE3 for as long as it takes and close to zero interest rates for another three years, Gold and Silver Prices may not face sharp declines & may get downside support sooner than expected. The Federal Reserve’s Blank Check has led to a freefall in the exchange rate of the US Dollar versus a basket of major currencies globally & will continue to add fuel to the fire, which in turn is positive for Gold and Silver Prices in the longer term. Gold and Silver Prices may only see more of a Price consolidation than a healthy correction & prepare for a further rise, since the Fed will continue with its QE3 program until there is a marked improvement in the labor situation and the economy, which will obviously not happen very soon. The open ended timeframe QE3 for improvement in the labor market & economy effectively implies the Fed’s willingness to tolerate inflation, which in turn supports Gold and Silver Price rise. Chinese selling interest has been low, which could mean another sharp move higher for Gold and Silver Prices.
Meanwhile, the South African police stopped ANC rebel Julius Malema from addressing striking workers Monday as the government intensified efforts to contain the unrest and violence that has accompanied it. There are some expectations that workers will return to mine shafts soon.
The outlook for Silver & Base Metals is even better than as expected for Gold. Sentiment toward Copper and other Base Metals has turned bullish since the past few weeks and this could last for some time on the multiple & simultaneous Quantitative Easing Programs announced. Most base metals are modestly softer on the LME – London Metal Exchange after getting a boost last week from more US & European Quantitative Easing, and they could slip some more in the short term strictly. It is too early to do a complete about-face on the effectiveness of the Fed’s easing program. Expectations for a stronger US economy should help demand for industrial Base Metals, Gold and Silver. Silver, Copper & Base Metals will also continue to rise on the weakening US Dollar as Investors will utilize these as a hedge against the fall in US currency and also as Investment in Gold tends to be less lucrative in comparison to Silver & Base Metals as Gold Prices rise. Silver & Base Metals had declined more than Gold Prices during the earlier declines & have more potential to rise & deliver more gains in percentage terms. After a lackluster buying trend for the past few months, physical demand for gold rose “dramatically” on Friday, says Barclays Capital, citing a report by Reuters. Jewelers and investors scaled-up purchases despite local record prices. Indian buyers bought into the rally ahead of several major Gold-buying festivals amid concerns that prices could breach Rs. 35,000 /10g following the announcement of the US QE3, raising the support level for Gold Prices. The next major news event the markets are awaiting this week is Thursday’s manufacturing data coming out of China.
Silver could easily soar past $44, its first strong resistance before hitting $50.50, benefiting from rising investor and industrial demand. Buying interest in Silver is rising, with the metal “benefiting from its status as the higher-beta, cheaper version of Gold. Rising Silver Prices are attracting investors, particularly in China, which had vacated the market following violent action in 2011. SGE Silver Trading volumes are at the highest level since May 2011, with 4,062 metric tons traded on Friday alone. This was the highest daily volume since late April 2011, when Silver neared $50 an ounce. The bank says action is similar on the SHFE, where combined volumes picked up significantly since late August. It’s clear that Silver is rebuilding investor interest here. Chinese investors here have played a significant role in Silver’s powerful moves last year.
Comex Gold remains largely strong till trade maintains momentum above the crucial $1744.3 level & may see bounce ups to $1778.5, $1801, $1825.3 & then $1855. A strong decline below $1742.5 to $1734.4 support range could lead Gold to $1716.4 & then to a strong support level of $1660.6 also. Comex Silver retains strength till above $34.03 & may resume its upside journey to $35.56, $36.28 & then 37.72 for the short term. The first real resistance Silver may face would then be around $44.20. MCX Gold has declined for the past 2 days more on the back of the sharply rising INR / US Dollar, than due to corrections in Gold in the International Markets. I strongly feel that Gold would continue to remain weak in Indian markets till the INR continues its Northward journey. Trade in MCX Silver would provide more handsome returns in comparison to Gold in Indian markets also. The US Dollar fall is what is making Gold Futures prices rise, but at the same time the fall in US Dollar makes the INR stronger which in turn has an adverse effect on Gold prices in Indian Markets. Indian Investors in Gold Bullion may be largely disappointed & Silver would prove a better bet.
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