GENERAL MARKET CONDITIONS

I am starting to enjoy the frankness of Fed chairman Ben Bernanke as he said that the Fed is paying close attention to the foreign exchange markets and the decline of the dollar, because of its implications for U.S. growth and inflation. The downward pressures on the dollar has contributed to the unwelcome rise in import prices and consumer price inflation. In January he had explicitly admitted that the US is nearing recession. It’s too early to comment whether the US dollar has bottomed out for the rest of the year. We need to look at the second round effects of higher food and energy prices on US consumer spending as well as global consumer spending. The US dollar will gain if and only if the US economy shows signs of stabilisation. A stable interest rate regime will promote carry trade and could be positive for stock markets till September.

Commodities can fall in the short term due to liquidation of long positions by fund managers after the Bernanke statement. In the medium term to long term, fundamentals will take over and a new high should be formed. Commodities will be delinked from the US dollar and movement in other financial instruments. The only risk to commodity prices in the long term is a sustained global slowdown.

SILVER -- JULY FUTURE

Silver has to break $1713 else it will trade in a wider $1620-$1713 zone. A break of $1713 will result in $1754 and $1780.

MCXARUN
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