SILVER FORECAST FOR 2009 " THE YEAR OF VOLATILITY AND UNCERTANITY"

SILVER FORECAST FOR 2009 " THE YEAR OF VOLATILITY AND UNCERTANITY"

SUMMARY :- FIRST:-
Prices outperformed Gold on the way up and are doing so on the way down

SECOND:-
ETF investors have continued to accumulate Silver into the weakness, which is a bullish sign

THIRD:-
Fabrication demand is set to weaken in 2009, while mine supply is set to rise, both of which will see the supply surplus increase.

FOURTH:-
There is a big question mark over the dollar; if the financial situation eventually causes further dollar weakness then precious metal prices could soar.

Fabrication Demand
Fabrication demand covers Silver’s use in industry, photography and jewellery manufacturing. So far in 2008, all these sectors have been hit hard. The high prices in H1’08 that saw an average price of $17.42/oz, after an average 2007 price of $13.38/oz, deterred jewellery demand. Photographic demand is in steady decline with demand falling around 10% per year as digital photography has taken market share much faster than originally thought. Industrial output has been the mainstay of Silver demand growth, growing 7% in 2007. Although many applications are price inelastic, when prices were high consumers lived hand to mouth and since the summer’s rapid decline, there seems little pressure on them to restock. Indeed, there was some inventory destocking as the economic outlook deteriorated. Fabrication demand is expected to pull back by around 8% in 2008 and with hard economic times ahead in 2009, demand is likely to suffer again, although lessening industrial destocking should help boost apparent demand and offset ongoing declines from photography. Overall, we expect fabrication demand to be broadly flat in 2009 at 24,500 tonnes.

Industrial Demand
Industrial requirements account for 43% of total Silver demand and are of paramount importance to the Silver market. In recent years, global growth has been expanding at a fast pace, but this has started to slow in 2008 and is likely to slow further in 2009. Consensus forecasts for World economic growth are 3.5% in 2009, after growth of 3.9% in 2008. As such, we should expect Silver’s industrial demand growth to slow from the 7% seen in 2007. That said, industrial applications now account for 54% of fabrication demand, which is up from 38% ten years ago, and with India, China and the US accounting for 70% of this rise in industrial usage, via a wide spread of new applications, demand may be well cushioned
Asia is now more decoupled from the US than it was during the last economic slowdown in 2001 and 2002, and this may mean the impact on Silver is less severe. In 2002, industrial demand had fallen 10% below the figure in 2000, so we would expect less of a slowdown this time round. However, even a 7% slowdown in 2008 would still mean demand would fall by just short of 1,000 tonnes. For 2009, we forecast demand to remain flat at 13,200 tonnes. We expect industrial consumption to ease, but apparent demand to pick up as consumers return to a hand-to-mouth buying after destocking in 2008. Later in 2009, we would not be surprised to see restocking if prices are still below the $12/oz level.

Photographic demand :-
Use of Silver in the photographic industry peaked in 1999 at around 7,000 tonnes; in 2007 it accounted for 3,990 tonnes and in recent years has been falling at around 10% a year. This trend is likely to continue, although it may accelerate again as more hospitals migrate to digital X-ray systems. Indeed even in China where there was a move to utilise the world’s obsolete X-ray facilities, demand for photographic Silver has started to fall at a rate similar to the global rate of decline. Japan was the only large user to see demand increase in 2007 and that was because they consolidated their photographic manufacturing industry in Japan, having retreated from other countries. All in all, photographic demand is likely to continue falling and if the economic slowdown bites hard, then more photographic manufacturers may opt to move out of the industry, thereby further accelerating the demise of Silver’s use in photography. Overall, falling demand from this sector is likely to free up a further 400 tonnes of Silver next year

New applications :-
The main growth area for Silver’s industrial usage has come from the health, electronics and renewable energy industries. In recent years, strong growth has been seen in consumer electronics in the form of plasma TV / display screens and in solder for a host of electronic gadgets. However, another area now seeing rapid growth is that of thermo photovoltaic cells, which convert light into electricity. Smart tags (RFIDs) remain a growth market and with the price per tag reducing as their use rolls out, growth is likely to increase exponentially. Outside the electronics field, Silver’s antibacterial properties are being incorporated in more and more products from medicines, bandages, soaps, clothing, and chemical compounds added to door handles, photocopier buttons, paper, air conditioning units, all of which help the spread of bacteria in the home, office and in public places, such as hospitals, public transport, restaurants etc. Although only minute amounts of Silver are used per item, the mass of applications will see demand for Silver from this area grow. In addition, Silver may also be about to make inroads into the autocatalyst market for diesel-powered industrial machinery. It is estimated that collectively these new applications could account for up to 1,000 tonnes of demand within the next ten years. So although these new high-tech applications may not rescue the market from this economic slowdown, they may provide a significant boost for demand in the years ahead, which may keep investors’ interest high.

Investment demand :-
The combined ETFs have continued to grow in size despite the rapid pull back in the Silver price. The chart opposite shows the combined end of month holdings of the London, US and Zurich ETFs. The fact that redemptions up until now have been light, suggests that long term investors are still buying into Silver’s safe-haven attributes. Indeed, since the start of the year, the ETFs have grown by 2,786 tonnes. This rate of up-take has been much stronger than expected and will have gone a long way into absorbing the supply / demand surplus generated so far in 2008. Considering this, it is surprising that prices have fallen the way they have.
With demand from the photographic industry slowing and with the potential for a slowdown in industrial demand also looming, the investment side of the equation is going to have to absorb the extra Silver supply coming on stream next year. The question is at what price it will do so. This is something that will need to be watched carefully. Indeed, at some stage the very success of the ETFs may become a threat to how far prices can recover, as with some 8,000 tonnes of visible stocks in the ETFs it does represent a third of annual Silver consumption. Obviously, just because the Silver in the ETFs is there does not mean it is for sale (indeed the opposite maybe true), but it does make the market more vulnerable as the more people that hold investment Silver, the greater the chance that some will break ranks and take profits.

The net Fund Silver position started to grow in early December 2007 with the net long position rising rapidly from 28,000 contracts to 54,000 contracts in late February. Profit taking then kept the net long position around the 43,000 mark until late July, when liquidation selling set in with vigour, taking the net fund long position to around 17,000 contracts by the second week in October. In tonnage terms this meant that on the way up the net fund position grew by 4,043 tonnes, but on the way down some 5,755 tonnes were liquidated. This volume of liquidation selling outpaced the level of buying across the ETFs and as such it is not surprising that prices have tumbled. Going forward, the net fund position at 17,000 contracts is still above the 9,300 net long position seen in September 2007 and the 11,650 contracts seen in August 2005. However, in recent years, the net long position has not spent much time below 20,000 contracts and therefore we would not be surprised to see some speculative buying return. Indeed, given that we expect there will be further need for safe-havens in the months ahead and given that the Gold : Silver ratio has fallen to 1:79, we feel there is a strong chance of seeing a rapid rise in THE LONG POSITION

TECHNICAL OUTLOOK :-
The Silver Chart shows the rapid sell-off from the highs, which is making the market look oversold. The lows from June 2006 at $9.46/oz have been breached as has the higher of the two long term up trend lines at $9.73/oz. Failure to hold here would suggest a pull back to the next up trend line at $8.25/oz. The stochastic indicators are still showing weakness, although they are starting to flatten out in the low zone, which may indicate an easing in selling pressure.
However, given the damage to the chart, bulls are likely to want to see considerable consolidation before regaining any significant level of confidence. Although the recent drops have been fast, rebounds could be equally fast. At some stage, the market is going to have to consolidate and build a base, before the market will be ready to advance on a strong footing.
As such, we would expect range trading between $9/oz and $11.50/oz first and if the market is then seen to have put the liquidation selling behind it, prices are then likely to work at clearing overhead supply up to $14/oz. Indeed, it would take a move above $14/oz for Silver to look long term bullish again.

Conclusion and Forecast FOR 2009:-
The extent and speed of the pull back in the Silver price has been shocking, but this does suggest panic selling and in turn prices are likely to have overshot on the way down. Given Silver’s safe-haven attributes, we expect it to pickup further investment buying interest. Indeed, you only have to look at the strong rise in ETF holdings and the rebound in fund long position to see that investment interest is strong.
Fundamentally, Silver is facing a hard time as supply is set to rise while fabrication demand
Fundamentally, Silver is facing a hard time as supply is set to rise while fabrication demand is bound to suffer as the global economy slows down further in 2009. Although on paper supply is set to grow next year, given the massive sell-off in lead and zinc prices, it would not be surprising to see some mine output cuts which may reduce the supply surplus that is currently forecast. However, a large surplus is on the cards and that will mean investors will have to remain strong buyers throughout 2009 if the surplus is to be absorbed. That said, the selling of late seems to have attracted further investor buying and with prices down below $10/oz, other investors who have been sitting on the sidelines may join in. This is especially likely if the dollar starts to weaken again, which we think will be the case at some stage in the months AHEAD

In the near term, prices are expected to consolidate. They may bounce first and then consolidate but we would be wary of fast rallies as overall the damage to the charts, will keep bulls nervous for some time, until a base is seen to be in place. Overall, though, we feel investors will be looking for a safe-haven and Silver along with other precious metals may be the place money initially heads to once the turbulence in the financial market settles down. Given the poor industrial demand outlook, we are reluctant to paint too bullish a fundamental picture for Silver, but we are bullish for Gold and Silver is likely to follow in Gold’s footsteps. Indeed, with the Gold : Silver ratio at 1:79, Silver may once again be seen as a cheap entry point. Overall, we would be surprised to see Silver hold below $9/oz for any length of time and fresh highs would not be out of the question, if there is a seismic shift in confidence away from the dollar. For 2009, we expect the bulk of trading to be within the $9/oz to $18/oz. ~~~ THANKING U ~~~

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FOR 2009 YEARLY OUTLOOK ON GOLD " THE YEAR OF VOLATILITY WITH UNCERTAINITY" ---- FOLLOW LINK ::: http://munnabhaianalyst.blogspot.com/2008/12/2009-yearly-outlook-on-gold-year-of.html

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2009 YEARLY OUTLOOK ON GOLD " THE YEAR OF VOLATILITY WITH UNCERTAINITY"

2009 YEARLY OUTLOOK ON GOLD " THE YEAR OF VOLATILITY WITH UNCERTAINITY"
FIRST-
Prices are falling fast as financial institutions cut exposure across all markets
SECOND-
The current turmoil in the financial markets is creating enormous confusion and demand for dollars is rising as investors head for cash, all of which is weighing on Gold
THIRD-
Expect Gold to attract more investment buying once the dust starts to settle as confidence will be rock bottom and investors will want a safe haven
FOURTH-
Hard to imagine given the current performance, but Gold prices could rise to new record highs once the distressed selling has finished and investors realise the dollar may not be the safest place to take shelter

THE BIG PICTURE
The Western banking system is in a crisis and as this plays out, the wider financial system is suffering. Institutions have been hit by the credit crunch and as such they are retrenching and deleveraging in an effort to consolidate and stabilise. However, the result has been a deepening of the credit crunch and that in turn is affecting the wider economy. The ramifications of this are enormous and one can only hope the domino effect has been contained by concerted central bank and government action. There is a high risk, however, that there is more pain to come and if this is the case then the markets could suffer considerably more. Given this uncertainty and the risks the markets still face, it seems highly likely that more Gold will be bought as a safe HAVEN

FACTORS DRIVING GOLD PRICES:-
The dollar – In addition to the factors mentioned in the above section regarding the dollar, other factors are also providing support for the dollar. The deteriorating outlook for European growth has pushed the euro down against the dollar and falling commodity prices have seen commodity currencies fall against the dollar too. In addition, a much weaker oil price means less dollars have to be sold to buy oil. These trends will remain important for the dollar, but if there is a shift in confidence in the underlying value of the dollar, then further dollar weakness is likely.

Central Bank diversification – On average, central banks hold around 10 percent of their foreign exchange reserves in Gold, with the US holding 78%, Germany and Italy around 67%. By contrast, China, Japan, Russia and Taiwan who also have large foreign reserves, hold only minimal amounts of Gold. China holds 0.9% of its reserves in Gold, Japan 2.1%, Russia 2.4% and Taiwan 4%. With a significant proportion of these reserves held in dollars, there must be considerable pressure for these central banks to diversify their dollar holdings. Indeed, the combination of the current financial crisis, a rise in the dollar and a pull back in the Gold price may well provide an attractive incentive to find ways to diversify. Even if these countries do not buy Gold, the likes of China, which is resource hungry, could decide to spend some of their dollar reserves buying other much needed commodities for their strategic reserves, such as copper, iron ore and oil. In turn, if this weakens the dollar then it could underpin Gold too.

Oil – Oil and Gold prices have been positively correlated for most of the bull run. Indeed, the turndown in oil prices in mid-July this year coincided with weaker Gold prices too. At some stage, we would expect the correlation to break down as it would not be surprising to see oil continue to suffer, as the prospects for demand fall and the outlook for global growth slows, whereas Gold’s safe-haven attributes are likely to support it and indeed boost it before too long. However, as oil and energy products tend to make up a big proportion of commodity baskets, the selling of these baskets is another reason why Gold prices are suffering, even though the market might not actually be that bearish on Gold. Going forward, once the rout in oil runs its course and with OPEC likely to attempt to support prices, we would expect the negative impact on Gold to SUBSIDE

TECHNICAL OUTLOOK ::
Gold prices have fallen back and breached the up trend line that started in mid-2005 and have decisively broken the 60-week moving average (300 day), which had underpinned the market throughout 2005, 2006 and 2007. Prices have also fallen below the 2006 peak at $730/oz, which puts the lower peaks seen in 2006 and 2007 into focus as possible support areas. These range from $690/oz down to $650/oz. Just below there at $640/oz is the area where the 60-week moving average, the up trend line and the low price from August 2007 all converge, which may also be a natural support area.
While Gold is undoubtedly oversold in terms of some measurements, as important supports and retracement levels have been broken, bulls will wish to see considerable consolidation before regaining any significant level of confidence. However, if consolidation now follows and a base is built, the overall long term up trend could still carry prices higher. However, it would take a move back above the breached up trend line at $770/oz and really the $820/oz resistance level to start making the chart look less vulnerable. On balance, we would now look for consolidation to set in and to be followed by further upside initiatives in the months ahead.


FORECAST & CONCLUSION ::
With Gold setting new record highs and attracting huge investment and speculative inflow, it is not surprising that profit taking set in. However, over the past few years, we have seen times when the broader market goes into risk reduction mode and that carries Gold prices down with it, but for prices to bounce back once the liquidation selling pressure abates. Although this current sell-off could be saying the bull market for Gold is all over, we do not think this is the case. This current weakness is on the back of deleveraging, which is a severe form of risk reduction, but there is little doubt that the underlying fundamentals for Gold have improved in that the very foundations of the Western financial system have been shaken. When the dust starts to settle, investors are unlikely to have much confidence in any assets, but money will need to be invested in something and assets with intrinsic value are likely to shine above paper assets. Likewise, the dollar is rising strongly, but this seems to be for mechanical reasons associated with the dollar being the World’s trading currency (when things are cashed in, it tends to be for dollars and with banks not lending freely, there is a technical shortage of dollars, hence the dollar is in strong demand), but these are not fundamental reasons. Given the dollar is the currency of the current financial system, in time the weakness in the system is likely to be reflected in the value of the dollar. If this happens, then Gold is likely to rise in value as it is seen as the only quasi-currency not linked to any one government or tied into any one financial SYSTEM.
Overall, given the state of affairs, it does look as though there will be no quick fix to the current problems and the situation may well deteriorate further before stability returns. As such, investors’ confidence is likely to be shaken further and once financial institutions have deleveraged and the dollar tightness this is causing eases, then money is likely to flow into safe havens. As such, it seems likely that there is still a big window of opportunity for Gold to shine in the months ahead, but as always, the timing will be very difficult to judge and it will probably be best to sit on the sidelines until the market starts to lead the way. All said and done, we would not be surprised to see Gold prices rise to new highs, possibly significantly new highs, between now and the end of 2009, while we feel any further downside from here is likely to be short-lived and be followed by higher prices. Overall, we would expect the bulk of trading in 2009 to be within the $700/oz to $1,300/oz range.

FOR SILVER FORECAST FOR 2009 " THE YEAR OF VOLATILITY AND UNCERTANITY ~~~ FOLLOW LINK :: http://munnabhaianalyst.blogspot.com/2008/12/silver-forecast-for-2009-year-of.html

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MCX Gold Feb: As long as 12864 ; 12941 levels support expect price to stay firm for a test of 13295 or even higher towards 13511.A break below 12750 would delay the rise and take the price towards 12479,12417 which are stronger support levels.S1: 13000 S2: 12920 R1: 13170 R2: 13265
MCX Copper February: Prices likely to trade in a range of 137.80,146.65.A break of this range will decide the next directive move.S1: 138 S2: 134 R1: 145 R2:149
MCX Crude Oil Jan : As long as 1683 is broken on the downside , expect prices to stay firm for a test of 1850 levels.A break below 1675 levels will negate the possibility of this corrective rise.S1: 1755 S2: 1700 R1: 1865 R2:1910
MCX Zinc Dec: - Expect dips to find support at 53.00 , 53.50 range for a move higher towards 57.50 levels .Only a fall below 52.00 to cast doubt on this bullish view.S1: 54.00 S2: 53.10 R1: 56.30 R2: 57.40

TECHNICALS

FOREX EURO TECHNICALS:The pair entered a downside wave and we now see it trading above the 38.2% correction for the ascending channel that started on 4-12-2008 where we expect to see slight inclines today as far as the above mentioned level at 1.3890 remains intact. The current upside movement will be another attempt to retest the ascending channel that the pair had exited during last week's session yet we still believe to witness some volatility during this upside movement. Note that downside corrections are still possible. We depend on four hour closings due to the volatility in financial markets and the fluctuations on the intraday basis. From here we see that using the stop loss and confirming the breach of resistance and support levels is based on these closings to overcome the turbulence that resulted from the current global economic conditions
Recommendation Buy the pair above 1.3945 with targets at 1.4020 and perhaps 1.4090 and stop loss with a four hour close below 1.3890
The trading range for today is among the key support at 1.3730 and the key resistance at 1.4285
The general trend is to the downside as far as 1.5080 remains intact with targets at 1.2340 and 1.2225

COMEX GOLD TECHNICALS;The metal did reach our targets at 830 where we currently see the price undergoing a slight upside channel for some time yet we don't expect to see gold inclining above 866.95 or 884 at most. From here we believe to see upside movements for today to complete the bullish wave before entering a downside wave that could be steeper than the one seen during the previous week.
The trading range for today is among the key support at 784.90 and the key resistance at 884.50
The general trend is to the downside as far as 934.00 remains intact with targets at 649.20 and 615.60

COMEX SILVER TECHNICALS:Silver was able to trade within an ascending channel with a key support at 10.93. Since trading is above this level, we expect to see further inclines yet the above mentioned support level is weakening as it failed to halt further declines during the previous week. Therefore, any inclines seen today, will most likely be on an intraday basis
The trading range for today is among the key support at 10.34 and the key resistance at 11.72
The general trend is to the downside as far as 14.70 remains intact with targets at 8.05 and 7.60

NYMEX CRUDE TECHNICALS:Crude is still targeting 40.05 and perhaps extend to reach 38.50 yet trading is currently above 42.50 which is the previous bottom on 5-12-2008 which could open the way to 44.95 as an initial target. We currently see crude near the key resistance for the short term descending channel at 43.15 which is extending towards 43.50. Slight declines could be seen today yet the opportunity to breach the above mentioned level is still good which will help support crude to reach further upside targets
The trading range for today is among the key support at 35.85 and the key resistance at 46.00
The general trend is to the downside as far as 92.30 remains intact with targets at 34.85 and 32.25

INR UPDATE WEEKLY:USDINR (47.11) In the daily chart of Dollar Rupee we can see multiple top around 50.15 accompanied by negative divergence by the RSI indicator. This was followed by a sell off which has dragged prices below the previous bottom. Looking at the Fibo levels we can see that both 23.6% and 38.2% stands violated. Selling is suggested on rally. Outlook: Bias is bearish. Support Levels: 46.00/45.10 Resistance Levels: 48.20/48.50

INTRADAY:USDINR (47.59): Dollar Rupee has stagnated. The downfall momentum seems to have temporary stopped with the pair finding support at around 47.40. Action suggested is to sell towards 48.20 or on sustained move below 47.30. Support: 47.30/47.00/45.30. Resistance: 48.20/48.80-90