Evening Rupee update..Strong Gold move highlighted

Indian share prices hit a new intraday high yesterday with the benchmark 30-share Sensex touching 14,742.56 points in morning trade as interest rate concerns eased, dealers said.
They said sentiment improved after India’s inflation fell to a 14-month low, according to data released last Friday, easing pressure on the central bank to further tighten monetary policy.
The Sensex notched up the new record high in the first 20 minutes of trade, led by bank, capital goods and oil stocks.
The Sensitive Index added 13.75, or 0.1%, to 14,664.26, beating its record close on February 8. The S&P/CNX Nifty Index on the National Stock Exchange slid 4.55, or 0.1%, to 4,313.75.
“The easing of rate concerns and sustained fund buying have aided the markets; we expect the markets to consolidate at these levels,” said Shitin Desai, executive vice-chairman of DSP Merrill Lynch.
The markets have risen sharply since its recent intraday low of 12,316.10 on March 16, as global and local rate concerns eased in recent weeks.
Last week the US Federal Reserve kept key rates unchanged at 5.25 % which saw global markets improve. (ING RUPEE / US DOLLAR CALL NOT LOOKING GOOD)
India’s central bank, the Reserve Bank of India, at its monetary policy meeting in Apirl, left key short-term borrowing rates unchanged, seeking to keep economic growth on track.
India, amongst the fastest-growing Asian economies, grew by a higher-than-expected 9.4% for the year to March.
The RBI embarked on a rate hiking cycle in late 2004 and has pushed its benchmark rate to a multi-year high of 7.75% to contain inflation which was running close to 7%. Since February this year, India’s inflation rate has eased, dropping to 4.03% for the week ended June 16, in line with the RBI’s medium-term target of 4.0-4.5%.
“Overseas fund flows and local interest have boosted Indian capital market growth,” said Atul Hatwar, dealer with Crosseas Securities.
Overseas funds have been net buyers of Indian equities this year to the tune of $4.45bn, well above the $2.66bn worth of shares that they purchased during the same period a year ago.
In 2006, the Sensex rose by a record 46.7%, led by foreign fund investments in Indian equities totalling $7.99bn.
India’s rupee, Asia’s best performer in the past quarter, climbed for a third day on optimism economic growth and rallying stocks will attract more overseas investment.
The currency posted the biggest quarterly gain in at least 34 years in the three months through June after the capital- account surplus jumped 74% in the March quarter.
India’s balance of payments more than doubled to $36.6bn in the year through March from a year earlier, a central bank report showed on June 29.
“Capital flows continue to be good,” said LV Prasad, chief currency trader at IndusInd Bank in Mumbai. “We’re seeing external commercial borrowings, foreign direct investment and other inflows increase.:
The rupee rose 0.2% to 40.65 against the dollar as of the 5pm close in Mumbai, according to data compiled by Bloomberg. The currency had a fourth quarterly gain in the three months through June, the longest winning streak since March 2004. Its 6.8% advance last quarter was the most since at least 1973 and the biggest among Asian currencies.
Gold futures were down on Monday tracking weaker overseas markets and a stronger rupee, with the near-month contract inching closer to its all-time low hit last week.

"The market has still not bottomed out," said Si Kannan, associate vice president at Kotak Commodity Services Ltd. "Some more consolidation is expected." Kannan said the August gold contract on the Multi Commodity Exchange of India Ltd is expected to trade within Rs 8,595-8,690 per 10 grams.

Open interest for August gold on MCX rose to 12,201 lots from 12,097 in the previous session.

Volume on Saturday was at 666 grams. Another analyst at Motilal Oswal Commodities Broker Pvt. Ltd. said the investment sentiment was lukewarm.

"The number of people comfortable going short is very low," said Tejas Parekh, senior research analyst at Motilal Oswal.
Over the weekend I was meeting my friends who are gold and silver traders in Multi Commodity Exchange of India (MCX). One thing they told me that they were unable to cope with the current volatility in gold and silver. Since all of them are positional traders they incurred losses as they were long in gold and silver. Gold had risen in dollar terms but they did not factor Indian rupee’s appreciation before deciding on their traders as a result despite gold’s rise in US dollar terms gold and silver fell in MCX in April to June quarter. This is the second phase of the commodity Bull Run which primarily began in 2002 and is characterized by greater volatility and consolidation. How come consolidation? Gold near dated futures have been trading in wider $600-$700 over the past one year and silver in wider $963-$1450. Either one should be a day trader or a positional traders. If you keep on switching sides, the probability of loss increases multi fold. How? Intra trader uses strict stop losses equal to two to three percent and does not leave any position open whereas positional traders needs to keep a stop losses of atleast fifteen percent. In Intra day trades losses is limited and one is not at the mercy of next day market semantics. The same trader is a bull in one day and the next day a bear. Positional traders cannot make such a move. There are various hedging techniques to minimize risk, which also have a cost involved. One has to decide his style of investment (positional or day trades) before investing. If you do not decide then you will only float in the river and will never to able to swim to either shore. This is just yet another reminder of the trading strategy so that losses are minimized. I am writing this as we are getting mails and calls on how to deal with silver long positions. There are lot of investors who are long in MCX silver between INR 19,00 and INR 20,000. Then there is the rollover cost which increases the purchase price.

Copper and silver futures expiry is now over. The Fed meeting is now over. The major event risk is over. This is shortened trading week due to US Independence day holidays. Volumes will reduce in the first half of the week. It will be another volatile week due to June payroll numbers on Friday. The US dollar has been on a steady decline before and after the Fed meeting. Key technical support for the US dollar Index is likely to be tested this week.