The Hindu Business Line : Fundamentals unlikely to impact gold

Pointers
Gold prices may zoom if $670 is breached.
But it could result in some profit booking.
US weather holds key to movement in crude prices.

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Mumbai Feb. 11 With continued cold weather, tightening supplies and increased geo-political risks combining to fuel a move higher, crude prices hit $60 a barrel on Friday in Asian trades, a development not entirely unexpected.

Psychological edge

Reports of further cuts in OPEC's observed output, heightened sabre-rattling between Iran and the US, forecasts that temperatures will stay below normal on the US east coast for another two weeks and delays in some refinery unit restarting in Texas all contributed to a change in sentiment, analysts asserted.

The rise above $60 a barrel should be seen as psychologically important for the market, although from a global fundamental point of view tightening of balances was seen as inevitable.

On the supply side, evidence is emerging that OPEC is cutting production in compliance with the announced cuts, a report pointed out.

The market has already gained by a fifth from its January lows. From here on, given the combination of factors, risks to the upside in the crude market appear real.

How far above $60 the market will move and the timeframe remains to be seen. Weather conditions in the US are being closely watched.

Glittering gold

Driven by rise in crude prices and taking direction from the dollar, gold prices have been rising. On Friday, London cash price was $664.50 an ounce PM fix.

Reports of International Monetary Fund (IMF) intending to sell gold failed to draw strong response.

Quoting the IMF Managing Director, a wire agency story said IMF could potentially sell a limited amount of gold holdings as part of its income system.

Dollar's fate

Earlier, another report suggested IMF could raise additional finance by selling around 400 tonnes of the yellow metal. Such reports had done rounds earlier too.

Clearly, reports of possible changes in fundamentals - rising supplies or falling demand - are unlikely to significantly impact prices.

The fate of the dollar seems to be the single factor to follow. Some experts see $670/oz as the next target.

Should that be breached, the market will be ready for a further sharp upswing. However, some profit taking at higher levels cannot be ruled out.

Fragile sentiment

As far as base metals are concerned, the sentiment continues to be fragile.

Towards the end of last week, most metals - copper, aluminium, nickel and tin - posted strong gains.

Copper saw a net outflow of 100 tonnes from warehouses mainly in Europe and Asia.

Interestingly, OECD's latest composite leading indicators suggest that the apprehended downturn in global industrial production rates will be relatively shallow.

This should provide some encouragement to the metals market.

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