Many readers kept calling me for a while, since I gave call to buy on silver when the precious metal was trading near $16. They had been asking what is the real cause of the price touching the sky every alternate day. No doubt the silver price has tripled in just few months, but there is still more room left for the price to move up before some correction. Here are some of the facts as why the silver hitting new highs everyday.
Reason 1:
The Silver inventory as off now is well below the 1 billion ounce. But in 1990 the world had nearly 12 billion in inventory. Most of the silver produce is directly consumed by the photography, in medical, defence, electronics and many other things. Almost 85-90% goes into this. And in the coming years the demand for the silver will keep on increasing and the production will decrease. The demand for precious result won’t come down anytime, but the production will. Industrial demand has been outstripping mining supply for almost last 15-20 years. The inventory of almost all the country has gone down.
Reason 2:
Some ask whether the price will collapsed as it did in 1980 when the Hunt brother’s cornering the silver market came in notice. The Hunt brothers were cornering the silver as to protect themselves from a collapsing US dollar. When this came into notice they had to sell off their investments and the price crashed within few days. At that point they had long position of nearly 100 million ounces. JP Morgan today has a naked short position in silver of approximately 122.5million ounces. The selling of such a huge positions of the Hunt brothers after the margin calls, had to impact the silver price and it did. Silver collapsed once again to its lowest levels. But now when JPM has such a huge position of shorts, you can imagine what will happen to price of silver when they come out to square up their positions.
Reason 3:
Correlation between Gold and silver had gone absurd. In the recent last 2 years the price of gold has gone up heavily as compared to the co-relation with the silver. Until last few months back when the silver price have gone multiples. According to the ratio the price of the silver should be much much ahead of this.
Lets talk about the Indian Equity market. Nifty and Sensex gained almost 1%. Smallcap and Midcap Index gained marginally. Auto index rallied 2.3%, Metals 2%, Banking index gained 1.2%. But losers were the Reality sector which lost 1.2%, Cap goods 2.3% & IT lost 0.60% after the TCS announced its results this week.
In the stocks Hindalco, Hcl tech, Ongc, M&M & Hul gained in the range of 5-7%. Bhel tanked nearly7% while Infosys closed down2.7%, Grasim lost 4% & Hero Honda 2.5%. After the announcement Corromendel lost 4.1%. Cromtom closed down 2.7% & Srf 2.6%. Some of the midcap stocks that gained were Fag bearing 7%, Thomas Cook 6%, Titan 3.3%, Fincable 4%.
In the last week’s article I had mentioned that the Nifty will fall down to make a low of 5800-5765-5735 levels. Nifty made a low of 5693 to take support at its 200DMA to close at 5885. Nifty bounce back from its 50% retracement levels to find stiff resistance at 61.8%. At the start of the month Nifty tanked after facing resistance at the same levels. Decisive breakout above the same will take Nifty to 5925-6000 levels. Nifty close above the 5925 levels will take the nifty to 5940-5989 -6000 levels. The journey ahead will be not so easy. Nifty will face many resistance levels above.
RSI has given a buy signal but the MACD has still not given any buy triggers. Nifty will continue to find support at its 200DMA. Nifty above 5900 will continue to rise till 6000 levels, but below 5806 will again drop down till 5725 levels or even further. As the next week is the expiry week, we might see some rough movement in the market.
Last weeks call.
Buy Pipavav Ship above 83.50 with tgt of 95. Made a high of 92.
Buy Bajaj Auto above 1420 SL 1403. Made a high of 1484.
Sell Cairn India below 342 SL 345. Made a low of 333.
Sell DLF below 242 SL 244.50. Made a low of 229.
This weeks call
Buy Bajaj Auto close above 1470 SL 1459.
Sell Bhel below 2048 SL 2059.
Buy Dlf above 253 SL 247.
Buy Hdfc bank above 2417 SL 2405.
Buy Hdfc above 738 SL 731.
Sell Pfc below 227 SL 228.50
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