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G. Chandrashekhar

Further price gains likely in a number of different metals

Mumbai June 12 Contrary to expectation, gold prices not only failed to breach the psychological $700 an ounce barrier, but also declined sharply in recent days following long liquidation as speculators found more attractive investment options.

Positive fundamentals

Indeed, everything was going well for the bullion market; yet, investors stepped back. Gold fundamentals continue to show positive signs.

Fabrication demand is steadily consolidating and is likely to continue to do so over the year barring, of course, another price surge and volatility.

The combination of dollar weakness, oil price strength and tense geo-political environment continues to operate as a price booster.

However, de-hedging has the potential to slow in the first half of this year and the estimated shortfall of European central bank sales is not expected to be as large.

What do these factors indicate? The gold market is clearly in need of some fresh market-moving factors. "Gold prices will need a new catalyst to reinvigorate its challenge towards $700 an ounce," according to experts.

Overall, as the series of key price determining factors remain favourable, going forward, it would make sense to be positive on gold prices.

Good demand

As for base metals, the market is now busy with the demand in the second quarter.

Some of the current features of this market include low inventory levels, supply problems and strong demand from China. Therefore, further price gains look likely in a number of different markets in the second quarter.

Copper prices may come under pressure because of a possible slowdown in Chinese demand following a big increase in import levels. So, prices can be expected to trade at the bottom of the recent trading range. Lead fundamentals remain strong, with significant production losses hampering supply growth. Meanwhile, the zinc market is rapidly tightening.

Upside potential

Experts see upside price potential. Strong demand and tightening physical supply would underpin higher prices. Buying on dips may well be the right choice.

On the other hand, aluminium market fundamentals are not inspiring.

Range-trading will continue. The back end of the forward curve continues to creep upwards on sustained buying.

This suggests that the bulk of gains have been exhausted and that prices here now offer less value.

Tin prices have recovered strongly but the market is yet to price in the full extent of Indonesian production losses.

Lastly, nickel is vulnerable to a phase of stainless steel destocking and coupled with rising LME nickel stocks and robust production in China of low-nickel pig iron, further downside risk to prices can be anticipated.

Oil fundamentals

In the energy sector, the global oil fundamentals are steadily tightening.

Both demand and supply side issues impact the market. Relative to seasonal demand, the US oil inventories show a steep decline. Has the OPEC taken too much oil off the market? Opinions differ; yet, risks associated with it are real.

Demand continues to be strong across the world, especially in the US and in Asia.

A large number of refinery outages, healthy demand conditions and below-normal inventory levels together create conditions for prices to move higher as the market moves into the third quarter.

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