GENERAL MARKET CONDITIONS

It’s back to the US dollar story for metals and energies. Metals and energies pared some of their last week’s losses on renewed US dollar woes. As long as the US dollar continues to weaken, metals and energies will remain firm. I am not surprised by US weak economic data. The effects of the Fed’s interest rate cuts will be felt only in the third quarter (after June), till then softness in the US economy will continue. Interest rate bets are also dictating the markets. If the US economy worsens further markets will start pricing in a more aggressive interest rate cut. Fed fund rates are at 2.25%. Under the worst case scenario Fed fund rates will fall back to 0.50% towards the close of the year. After the Fed finishes cutting interest rates what will happen to the US dollar?

Retail investors had invested in Indian equities in a big way in January (before the slide) and are using the current rise to exit stocks if their prices come. These investors are exiting stocks and investing in commodities. This will continue not just in India but also in other countries as stock markets remain volatile. Gold’s rise from $980 to $1032 resulted in shorts get squared off and fresh longs being created. Longs also got squared off when prices fell to $997 to near $900 due to lack of margin money. If such volatility happens in gold, even gold’s safe haven status will disappear and investors will sit on cash or invest in treasuries. Last week’s fall has scared off investors who have become short term traders.

SILVER -- MAY FUTURE

Silver targets $2000 -$2100 in short term as long as $1600-$1630 holds.

MCXARUN
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