GENERAL MARKET CONDITIONS

Markets are positioning themselves for 2008. The key concern for all of them is the extent of recession (if any) in US and what will be the top for crude oil prices. Energy prices and US and growth factors in other G7 nations will dictate the US dollar in 2008. I firmly believe that the US dollar should recover in the second half of 2008 as lagging effects of a stronger currency and higher energy prices results in cutting of interest rates by the ECB, bank of England and others, which will result in narrowing down of interest rate differentials. If interest rate differentials and growth differentials narrow between US and rest of the world (including emerging markets), the US dollar is bound to gain. However in the short term this gap will widen and more US dollar weakness in store. US dollar weakness implies higher precious metals and energy prices.

Zinc, lead, nickel, copper and other base metals took a beating on expectations of slower growth in 2008. Over the past three years base metals have been supported by strikes by mine workers in different mines across the world (apart from fundamentals of demand and supply). Base metals will be volatile for the rest of December as any confirmation that US economy is not slowing could result in paring of some of the November losses. Most of the base metals are yet to test 2004 lows, therefore there could be room for more losses before the next leg higher. Any five percent to ten percent fall in base metals switches the risk to return ratio in favor of the buyer.

GOLD -- FEBRURAY FUTURE

Double bottom has been formed at $778 and gold could test $818 and $844 in short term as long as $778 holds.

SILVER -- MARCH FUTURE

Silver can test $1474 and $1494 as long as $1406 holds. Falls below $1406 then $1396 and $1376 are the targets.