Gold, Silver & INR decline. – Seem to be on a “SALE”.
Gold, Silver Bullions extended losses on Wednesday and slipped to the weakest levels since December. MCX Gold June futures sharply fell on opening trade to Rs. 27,866 & may find support at Rs. 27,800. Comex Gold June futures declined sharply today and Gold prices slumped to a fresh four-month low of $1,532.7 an ounce & may find support at $1518.40. MCX Silver July slipped to Rs. 52,121 & may find support at Rs. 51,900. Comex Silver July Futures declined to $27.345 & may find support at $26.65.
Gold is now behaving like other risk assets rather than the “safe haven” as deemed for years as the euro hits multi-month lows.
Gold prices dipped yesterday to $1541.20 but have a breached the strong technical support of $1,540 only in Intraday Trade today & should ideally bounce up from dips below this level. Only a close below $1540 may send Gold sharply down to $1270 levels also.
Silver has a strong technical support in the $28 to $26.20 range on the downside. Any breach with a sustained momentum on closing basis below this range may signal a strong bearish trend for Silver & may decline further to $22.60.
“The market is effectively trying to price in a disorderly exit for Greece. “Greece’s failure to form a government prompted investors to cut their exposure to the precious metal, which is now behaving like other risk assets. Concerns about upheaval in the euro zone hit the euro and sent share prices lower across Asia as Greek political leaders meet Wednesday to form a caretaker government that will lead the country into its second election in just over a month. The euro held at four-month lows against the dollar and may extend losses sustained so far this month after Greece said it will hold new elections, raising risksAthenscould eventually exit the euro. Financial markets have been rattled by the prospect that a victory next month by Greek leftists opposed to austerity measures – conditional to an international bailout – could put not only Greece’s euro membership but the euro zone’s fiscal consolidation efforts at stake. Anti-austerity party officials in Greece rejected a plan to allow an appointed group of technocrats manage the finances until the elections were settled. Believing they can make further gains in another round of elections, the opposition is in no mood to cut deals. Ratings agency Moody’s announced Monday that it has downgraded 26 Italian financial institutions.
Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, increased to 1,277.11 tons, as on May 10. Silver holdings of ishares silver trust, the largest ETF backed by the metal, increased to 9,516.4 tons, as on May 14. Gold and gold receivables held by euro zone central banks remained unchanged at 432.705 billion Euros in the week ending May 11, as per the European Central Bank.
Signs of China’s struggling economy also dampened sentiment. Chinese monetary authorities loosened monetary policy over the weekend by reducing reserve requirement ratios on domestic bank reserves. The move follows recent weaker-than-expected Chinese economic data. A stronger greenback adds further pressure to dollar-priced commodities such as gold, as it drives up to cost of the metal for holders of other currencies. Crude oil futures prices are yet trading sharply lower after hitting a 5-month of $93.65.
On Tuesday in India, Indian customs commissioner PM Salim said to the Indian press “Gold smuggling has increased drastically because of the increasing value of the metal”. Gold is being bought physically out ofIndiato avoid paying taxes here which would be levied if bought in Indian Markets. The Indian government has doubled the import duty on gold bullion twice this year, as well as proposing to extend gold jewelry sale taxes. The latter measure was dropped following a three-week long protest by Indian gold jewelers. India’s imports of gold bullion fell by two-thirds last month compared with April 2011.
Breadth indicators, technical analysis and sentiment indicators make a convincing suggest gold & silver are nearing a major bottom. Silver price of $26 is the 50% retracement of its entire bull market. The current commercial Gold short position has reached a 3-year low while open interest recently touched a two and a half year low. Europe will have to embark on some major money printing likely by the end of the summer. Continued weakness in US data along with the strength in US bonds and the US dollar will facilitate the environment for the next round of Fed’s further Monetary easing action.
INR May Futures hit a low of 54.42 against theUS$. The rupee has shed 9% since March, the biggest fall among major Asian currencies and traders are still building short positions, betting that it will fall to a record low of 56 per dollar this year. RBI’s intervention is a temporary reprieve. The RBI’s attitude to the INR is important because it can provide foreign exchange dealers with an indication of how much room they have to keep selling the currency. The RBI will be propping it, but the fundamental issues have to be addressed. FII’s are fleeing away by a slowdown in economic growth and large current account and fiscal deficits, stalled policymaking and a controversial proposal to tax foreign investment.
India’s economic growth has dropped in the past four years to close to 7% from almost 10%. Government spending has raised doubts about the country’s investment grade status and position in the BRICS grouping of Brazil, Russia, India, China and South Africa. From September to March, the RBI sold $20.69 billion in the spot market to check the decline in the rupee, which hit an all-time low of 54.30 in December. India’s foreign exchange reserve fell to $293.2 billion as of May 4 from $309.5 billion a year earlier. Net dollar inflows were more than $7 billion in February before falling to $387 million in March and swinging in April to a net outflow of $926.8 million.
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