Bullions May Continue the Rally

September 09, 2009

After a long consolidation phase Bullions have made a fresh rally in September first week. The yellow metal surged more than 4% in last week and confirmed most awaited technical breakout same time silver, the white metal, has continued its bull run and outperformed the gold. The white metal has posted more than 10% gains in last week. The white metal remained first choice in the bullions for the investment since economic recovery has spurred the industrial demand and its mining partner metals viz. copper, zinc etc. also supported the prices.

This rally in the bullions was most awaited and it has brought the bulls in the full control. The current rally means a lot since it was sans currency benefits i.e. the dollar (US) remained range bound at the time of surge in prices of precious metals. The dollar index confined to the 78 levels and it is likely to give downside breakout, which will further boost the commodity prices.

The interference of the Commodity Futures Trading Commission (CFTC) in excessive position holding in energy and other essential commodities futures contract also diverted the investors and traders towards the precious metals. CFTC snatched the life line of the energy futures especially natural gas and thrown into the multiyear lows. Natural gas near month contract was trading below $2.50 and same time crude oil also well off from this year high of $75.Skeptic view over the US greenback  sustainable levels and fear of inflation in longer term can further bolster the prices of commodities thereby precious metals can also take cues from the overall sentiment of the market. As I earlier mentioned the dollar index next level are at 75 where small support lies but major support will be at 72 levels. This situation may prop the competitor currencies at new highs of the year. Hence in the US dollar term gold and silver may pursue the upward momentum. The overall holding of the major Exchange traded funds has also increased significantly in the recent past. The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust GLD, holdings stood at 1,077.63 tonnes as of September 4th 2009. Which is lower than the record April levels but this has not deterred the investor and took the yellow metal to year high levels, on Tuesday morning gold prices have marked the high of 1010 USD/oz. ( seeFig:1 )

Fig: 1 goldchart

Technically gold has taken a good support at 100 DMA, which is still lying at the levels of 945 USD/oz  and it is regarded as main valid support for the current bull run. Gold has also crossed confidently key retracement levels. Silver is looking better than the yellow metal. The white metal has crossed and trading comfortably above the key retracement level (61.80%) which is lying at 16.44 USD/oz. (from 21.42 USD/oz to 8.40 USD/oz). Silver has also cleared the key resistance of $16/oz. and $16.25/oz. and may pursue the strong upward trend.(see Fig: 2 )

Fig: 2 silver daily chart

Therefore the secular bull run of gold and silver may remain intact in the coming weeks and which may get corroborated by the US greenback weakness. Even though the jewelry demand is very low investment demand and fundamentals can bolster the price. The longer term inflationary pressure will also remain good reason for the upward moving gold prices. Hence the gold price can touch the level of 1130 USD/oz. and simultaneously silver may test last year high of 21.40 USD/oz in this half of the year.

For comments and feedback please write to madan@safetradeadvisors.com .