The Hindu Business Line : Further upside seen for gold on weakening dollar

Outlook
From a technical viewpoint, the next resistance level for gold is $651-656.
London-based expert says there are still higher highs to come for gold.

Mumbai , Dec. 3

A steep fall in the dollar once again proved to be the key trigger for gold as well as other precious metals to move higher last week. Weaker US economic data led to sharply weaker dollar and a surge in buying interest.

Indeed, spot gold price in New York shot up to $655.50/oz before some profit taking emerged later in the day, pulling the yellow metal a little back, but still keeping it high enough.

Decisive break

On Thursday, the yellow metal gained more than $10 to close at $647.8/oz, while platinum and palladium settled over 2 per cent and 3 per cent respectively higher. It is now more or less clear that gold has decisively broken through the $640 an ounce level, with platinum and palladium also benefiting from the positive sentiment. With momentum gathering pace, further gains cannot be ruled out.

Foreign exchange strategists think that short-term risks to Euro/$ are skewed to the upside, with the interest rate differential having continued to move in Euro's favour.

Fuelling gains

This should prove positive for gold, possibly fuelling further gains. Risks for correction, however, remain. The recent wave of investor interest in gold has been highly reliant on the dollar sell-off and a sudden deepening of macroeconomic pessimism, commented an analyst.

In the near-term, the fate of the dollar now clearly hinges on US GDP growth numbers, especially for the first quarter of 2007.

European central bank sales have now gone up to 127 tonnes, with the announcement last week of a 23 tonnes sale, in conformity with the agreement.

From a technical viewpoint, the next resistance level would be in the $651-656 region, while support is placed at $641-635, according to a London-based technical expert who said there are still higher highs to come for gold; but choppy ranges will give way to the topside later this year or even into the new year.

Base metals

Nickel set a fresh all-time high at $34,400 a tonne on Friday.

The upward move was supported by a hefty drawdown of 660 tonnes in LME nickel stocks. Stocks now total a mere 6,100 tonnes.

Recent news of rising costs and delays on significant upcoming nickel projects in bringing on new supplies to the market serve to highlight a constrained supply side. This, in tandem with continued low LME stocks, point to continued tightness in the nickel market well into the latter half of 2007, according to analysts.

Supply uncertainties

Tin prices have risen for six days consecutively and touched $10,500 a tonne on Friday. Uncertainties on the supplies side from Indonesia are the reason for the price spurt.

Lead prices are also firming up with drawdown of LME stocks. Total LME lead stocks are now estimated at 43,200 tonnes, the second lowest figure this year after 42,000 tonnes in on January 3.

Copper prices continue to remain rather lacklustre in comparison to the rest of the complex. Supplies would be augmented in 2007; but producers expect prices to remain strong, notwithstanding current weakness, because of continuing demand from China.

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