The Hindu Business Line : Speculator action makes gold vulnerable

AS anticipated, gold prices have eased in the last few days on profit taking, encouraged by dollar strength, expectations of further Fed rate hikes and fresh reports about German central bank gold sales.

In the London market, the yellow metal was quoted at $544 an ounce in the early trade on Wednesday, with the sentiment decidedly weak.

It may be instructive to remember that far from being driven by fundamental factors, the gold price rally witnessed recently was the result of speculators' action. The latest Commodity Futures Trading Commission data showed that tactical investors have taken a more bearish stance towards precious metals in general and gold in particular. The only exception was palladium, commented an analyst.

The net non-commercial long position stood reduced by about 9 per cent on a combination of long liquidation and fresh selling. "With the sentiment towards gold appearing to have turned weaker, the significant gross long position suggests further scope for liquidation, especially if key technical support levels are tested," the analyst asserted.

Since the prices have been driven by speculators, they continue to be extremely vulnerable to change in sentiment. Given the extensive fund length, more liquidation cannot be ruled out.

However, geo-political tensions and speculation over large central bank purchases (for instance, China's central bank) could change the sentiment and trigger a reversal of the price direction while retaining speculative interest.

According to analysts, the outlook for base metals is also extremely constructive. After sharp technical driven price correction, price up-trends seem to be resuming. One could be most positive on zinc followed by aluminium, copper and lead during the year.

Globally, among agricultural commodities, sugar and cotton appear to have some upside left on the back of a supportive demand-supply alignment, strong market fundamentals, and positive investor sentiment. Wheat too looks good on the upside.