Gold, silver prices up amidst global uncertainty

April 25, 2011 - 0:0

Last week, the markets opened on a weak note on the back of the U.S. credit rating cut by the S&P and weaker-than-expected results here. However, the markets bounced back sharply towards the middle of the week driven by the prediction of a normal monsoon for the current year and healthy growth in the export numbers. Analysts believe a good monsoon will go a long way in keeping a check on the food inflation.

On the other hand, a reduced trade deficit will result in an increase in the confidence levels of large global investors. The markets are currently in a sideway movement, and trading close to the resistance levels (6,000 for the Nifty and 20,000 for the Sensex) since the last few weeks. The undertone is bullish due to fresh buying support from domestic and foreign institutional investors (FIIs).
However, investors should remain cautious in the markets with respect to their positions, and fresh investment decisions should be taken only after a careful study of the results and management guidance.
These are some of the major developments of last week that are expected to drive the sentiments and market direction in the short to medium terms:
----U.S. credit rating cut
In a surprise move last week, the world's leading credit rating agency S&P downgraded the credit rating of America for the first time ever since it started publishing ratings a couple of decades ago. The rating downgrade indicates an increased sovereign default risk due to high government debt in the US which is a result of the many stimulus packages it announced to assist economic recovery.
The rating cut is expected to weaken the US dollar and put pressure on the policymakers to start increasing interest rates.
----Domestic exports up
The domestic exports reported a healthy growth of around 37 percent last fiscal. This is a healthy sign and will go a long way in easing the concerns on the large trade deficit. The huge trade deficit is one of the main factors dampening the confidence of global investors.
Analysts believe maintaining the healthy growth rate in exports will be a major challenge given the uncertainty over the global economic recovery, and the rising import bill mainly due to the rising price of crude oil.
----Results season
It is the middle of the annual results season of the financial year 2010-11. The results from large-cap companies are pretty much in line with market expectations. There will be more action on the results front over the next couple of weeks, and the markets are expected to remain volatile during this period.
----Rally in gold, silver
There is a strong rally on in the precious metals gold and silver since the last few weeks. The run-up in the price of silver has been much sharper as compared to gold, as the price of silver shot up by almost 30 percent in the last one month. The main reason for such a sharp rise is speculation and rush for precious metals amidst uncertainties and issues in the global developed markets. The latest trigger for the rally in precious metals was the downgrade in the credit rating of government debt of the US by S&P.
The precious metals can scale further peaks in this current bull run. Therefore, short-term investors can look at riding the wave with a tight stop-loss level. On the other hand, investors having a position in precious metals should keep working on strategies to book profits and stay invested with a stop-loss level.
(Source: The Economic Times)