The Hindu Business Line : Metals make gains on weaker dollar

Mumbai April 29 Breaking away from their range-bound trading, gold prices fell last Thursday by 2 per cent to an intra-day low of $671.15/oz. The fall was triggered by the dollar gaining relative strength and subsequent profit-taking that emerged. London PM Fix on Thursday was $673/oz.

Friday saw the metals complex, including the yellow metal make gains on the back of a depreciating dollar following release of soft US economic data. Geopolitical news also weighed on prices. London PM Fix was $677.50/oz.

Slowest increase

The US GDP rose by a far-lower-than-anticipated 1.3 per cent (annualised) in the first quarter of 2007, its slowest increase since second quarter of 2003, following a 2.5 per cent rise in the December 2006 quarter, the Commerce Department reported on Friday. In year-on-year terms, the US GDP rose by 2.1 per cent in first quarter this year.

On the geopolitical front, despite diplomatic exchanges, there has not been a fundamental change in the Iran situation and in turn, geopolitical risk remains a supportive factor for gold prices longer term.

From a technical viewpoint, the market could rebound this week, but risk for further downside remains. Despite the Friday move, the weight of evidence points to further downside potential. A London-based technical analyst said that diverging daily momentum oscillators keep the near-term focus to the downside toward the recent base near 669 and potentially beyond before basing and a resumption of the larger uptrend later in the week.

Bullish bias

However, the bullish bias would be damaged by a break below trend line support at $658/657. Closes through $690 resistance would return attention to the recent highs. In the medium-term, the market will be choppy, but this will give way to the topside in the months ahead. Above $695 targets $730, but ultimately $850.

After moving lower across the board on Thursday with copper and aluminium prices testing the bottom of their recent ranges and tin falling particularly sharply, sparked off mainly by opportunistic profit-taking by discretionary funds, most base metals prices rose on Friday in the wake of depreciation of the dollar against most major currencies following the release of soft US economic data. Copper was 1.4 per cent higher on concerns about widespread strikes in Peru over the next few days and continuing declines in LME stocks.

Strong Fundamentals

Fundamentals remain strong across the base metals complex. No doubt, there is a potentially large threat to metals output, especially of lead, zinc and copper should miners strike take place in Peru. There is as yet no evidence of a conclusive decision.

According to technical analysts, as far as copper is concerned, in the short-term, support holds the initial test. The market remains vulnerable to further downside; but the weakness remains countertrend to the larger ongoing bull trend. In the medium term, market will ultimately retest and likely exceed its 2006 peak near 8800.

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