The Hindu Business Line : Dollar to determine gold direction

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Mumbai Jan. 28 Is the crude market changing direction? Or, is colder US weather too little too late? These are questions market participants are asking.

Turning positive

After continuing on a bearish phase for some time, crude made sharp gains last week. There seems to be growing evidence that market sentiment is turning more positive, with prices much more closely in line with fundamentals than they had previously done.

Colder weather conditions and the decision to double the size of the US strategic petroleum reserve were the two key factors in moving sentiment. Even though their influence on a pure fundamentals basis is marginal, they appear to have set the conditions for more substantial supportive factors - such as the continued robust demand growth, disappointing non-OPEC supplies, OPEC production cuts and geopolitical risks - to have a greater impact on prices, according to analysts.

Chinese oil trade statistics for December released last Thursday confirm that oil demand is continuing to grow robustly with the gasoline and diesel sectors both showing gains in excess of 6 per cent in December and in 2006 as a whole.

Chinese oil demand is likely to grow at a similar pace this year, underpinned by continued strong economic growth. China's 2007 GDP forecast is widely expected to be upwards of 10 per cent.

Gold struggling

After trading to a 5-½ month high, gold eased back towards the end of last week. Friday's London PM fix was $645.50 an ounce. The metal was weighed down by the influence of a firmer dollar and soft oil prices.

It is evident that the metal is struggling to overcome the $650 resistance area, which is likely to continue to be a near-term stumbling block. Very clearly, dollar movement holds the key to gold price movement. There is belief among some economists that the dollar may benefit from the US data releases such as durable goods order and new home sales. That should weaken the yellow metal.

From a technical point of view, analysts believe a further upside risk is likely. The bullish trend remains dormant and the July spike high near $675 remains the potential target, they assert. The resistance levels are placed at $645 and $639. In the medium term, choppy ranges may give way to the topside.

Uncertainty in nickel

Nickel set a fresh all-time high price of $38,900 a tonne (LME 3-month) Friday last, after closing at a record high of $ 38,150/t the previous day.

Over the week, the metal surged by 10 per cent.

The support came from further stock drawdowns. LME nickel stocks are estimated at less 5,000 tonnes. Importantly, the market is watching labour negotiations at an important mine in Africa. No headway is visible as yet.

So, there are uncertainties surrounding the nickel market and a further upside possibility is seen.

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