The Hindu Business Line : Gold may consolidate, then move higher

Prospects
Prices above $695 would pave way for retesting $730/oz.
All precious metals appear to be waking up from recent slumber.
Base metals market fundamentals remain positive.

Mumbai April 22 The entire precious metal complex buoyed Friday last, with gold rising by almost $10 an ounce. In London, gold PM Fix was $691.40/oz versus $681.90/oz on Thursday, while silver AM Fix was $13.87/oz ($13.84/oz).

ETF news

The platinum group metals, too, buoyed with the release of ETF (Exchange Traded Fund) news - Zurich Cantonal's planned platinum and palladium ETF alongside news that ETF Securities would be listing a platinum and palladium ETF on London Stock Exchange in due course. Platinum traded to a 5-month peak of $1,300/oz on Thursday and rallied further up to PM fix of $1,317/oz in London. PM Fix for palladium was $382/oz ($375/oz).

Gold is seen taking direction from WTI prices. In the nearer-term, prices are likely to trade in consolidation mode if not softening slightly because of profit-taking. But the market is sure to resume its upward trend as longer-term geo-political tensions should continue to limit the downside risk.

Strong hurdle

From a technical point of view, analysts note that $695 hurdle proved to be too strong on the initial go around and they hope a period of consolidation / pullback will ultimately lead to a break higher. Prices above $695 would pave way for a retest of the 2006 high of $730/oz. Indeed, chartists assert that all precious metals appear to be waking up from their recent slumber. Analysts cite the instance of platinum which has abandoned its bullish creep in favour of a full-blooded rally - above $1339 clears the way for a run at $1,405, it is claimed.

Base metals: Zinc, copper and nickel ended the week higher, rising by 5.9 per cent, 3.7 per cent and 3.3 per cent respectively, on the week. Zinc and nickel appear to have been driven by short covering.

Waning apprehensions

Copper rose on the back of concerns over supply from an Indonesian mine. Strong Chinese copper imports and further declines in LME stocks also impacted the sentiment. The market has been assessing whether stronger-than-expected first quarter Chinese GDP and CPI data would lead to an interest rate hike in China and thereby slowdown metals demand; but it appears the apprehensions have considerably waned and growth prospects are taken as positive price signal.

The overall base metals market fundamentals remain positive in the light of strong demand, disruptions in supplies and low inventories (LME stocks lowest since early December 2006).

LME nickel stocks are at critically low levels, while zinc stocks are regularly drawn down. Technical analysts say copper would see near-term consolidation. There could be two-way price action. The medium-term looks bullish as the market will ultimately retest and likely exceed its 2006 peak near $8,800, they assert.

Crude: Iran and the broader geopolitical developments in West Asia are likely to continue to provide a supportive layer to what is already seen as a fundamentally tight market. On the demand side is China's voracious appetite for oil.

Growth revised

The latest IEA's estimate of Chinese oil demand growth in January and February 2007 is an astonishing 10.1 per cent and 12.3 per cent respectively.

The average growth forecast for this year has been revised upwards to 6.8 per cent (6.7 per cent). On top of this, Chinese GDP - which ultimately is the key supportive factor for oil demand growth - surged in first quarter this year, rising by 11.1 per cent, the quickest pace of growth since 11.3 per cent in the second quarter 2006, experts pointed out.

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