The Hindu Business Line : Gold seen range-bound on seasonal factors

Outlook
Trading volumes are expected to be thin due to holidays.
OPEC decision has tilted the balance of risks towards over-tightening the market

Mumbai , Dec. 17

After Thursday's New York close of $626/627.50 an ounce, gold prices came under pressure on Friday, falling below $620/oz as the dollar strengthened. The London PM fix was $623.75/oz.

Clearly, on Thursday, the metal failed to show a strong reaction to a firmer dollar, edging lower but continuing to trade within a tight range. The steep rise in oil prices with the OPEC announcement possibly offset any impact of the dollar on gold, commented experts.

Further pressure

On Friday, the metal came under further pressure, weighed down by further dollar gains. The currency derived support from the release of positive US data.

The possibility of the yellow metal remaining range-bound over the next few days appears strong. With holiday season approaching, trading volumes are expected to be thin and sentiment muted. Even in India, with the marriage season coming to an end, gold jewellery sales are likely to slowdown. Buying on dips could of course be a reasonably safe strategy.

According to technical analysts, for the short-term, while weekly charts remain overbought, daily charts show divergence; and combined, the prospect is for further gold weakness, over the rest of the month. Whether gold makes a shallow or deep correction into the holiday period depends on whether the zone of support between $605and $614 holds firm, a London-based analyst commented. In the medium-term, there are still higher highs to come for gold. Choppy ranges may give way to the topside in the months ahead.

CFTC data as of December 5 suggested that speculators increased their long exposure to the Comex gold market.

Net fund length increased on a combination of the establishment of fresh long positions and short covering.

Interestingly, in the platinum group metals, investors reduced their long exposure to both platinum and palladium.

Crude

OPEC decision to cut output further by 5,00,000 barrels a day led to oil prices gaining sharply, settling 1.9 per cent higher at $62.51/bbl on Friday. As a considerable part of winter season would be over by the time the cut comes into effect (February 1) there is belief the impact on the market would be somewhat muted.

There is also belief that the cutback is apparently to be made from actual production levels, in which case it would add to the 1.2 million barrels a day reduction already made in November.

It seems highly likely that the OPEC's bearish view of the oil market balance for 2007 was the key factor behind the decision, with other considerations such as lower oil prices, a weaker dollar and the widespread bearish sentiment among market participants also played a role, asserted an expert.

Independent analysts believe the oil market balance in 2007 is much tighter and the latest OPEC decision has now tilted the balance of risks towards over-tightening the market.

Agri commodities

The latest CFTC data showed that speculators continued to hold positive view of agric-commodity markets. Net fund length in CBoT corn (maize) continued to hover around its highest level in nine years (since November 1997).

Speculators viewed CBoT wheat and soyabean markets too positively.

Net fund length was seen rising.

Net fund length in NYBoT cocoa market rose, so was the case with coffee.

In cotton and sugar, speculators scaled back their positive exposure.