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Gold & Silver Agri-Biz & Commodities - Outlook Near-term weakness in gold; medium-term bullish
Investor interest continues to remain the primary determinant of gold prices. If the farm situation turns out to be favourable, one can expect demand revival from mid-August onwards
G. Chandrashekhar
Mumbai, July 8 Gold prices have continued to remain under pressure, trading range-bound as a result of tracking the dollar movement. On Friday, the London PM Fix was $648.75 an ounce, down from $651.00/oz the previous day. Silver too softened to AM Fix of $12.40/oz on Friday, versus $12.60/oz the previous day. Key Factors
Investor interest continues to remain the primary determinant of gold prices. Therefore, external factors such as the crude oil market, future path of Euro/USD and the geopolitical environment are likely to continue to be the key factors. The US economic data will also be looked at closely for advance signals for dollar movement. The US non-farm payrolls data released on Friday was solid. The market is also noting developments on the de-hedging front. There are further gold hedge book buybacks, as producers continue to take a positive view on gold prices. Newmont Mining announced on Thursday last that it had spent $578 million in June and eliminated its entire 1.85 million ounce gold hedge position, making it the world’s largest unhedged gold producer. Demand Revival
Technical analysts cautioned that the snapback in gold and silver was not expected and was a matter of serious concern. For the time being they stick to a bearish near-term scenario for precious metals in general. They see gold below 662 and silver below 12.80, targeting 635 and 12.03, respectively. However, the bigger picture is that the medium-term looks bullish. There are still higher highs to come. “The choppy 621-695 range looks likely to continue for longer than we expected at the start of the year; and within the range we remain strategic buyers,” was a comment from a well-known chartist. Clearly, in case of gold, every dip in price should provide a good buying opportunity. In India, the active Southwest monsoon has considerably slowed down sale of the yellow metal. Should the farm situation turn out to be favourable, one can expect demand revival from mid-August onwards. Base metals: The copper market is clearly going through a period of uncertainty with labour action looming large. Prices are expected to continue to be supported at higher levels. However, if the strikes are not prolonged or prove to be short-lived, the rally, in response to the developments, too will be so. Inventories at Shanghai exchange are falling. Among other base metals, aluminium is drawing strength from copper and has been slowly climbing towards $2,800 a tonne. However, the metal may not be able to hold on for long because of plentiful supplies. Lead went on to set another record high last week at $2,920/tonne, with a jump in cancelled warrants to over 5 per cent providing support. Leading Indicator
Although prices pulled back on profit-taking, some consolidation at the current level can provide a solid base for another run higher. Importantly, for the base metals market, the recently published OECD composite leading indicator should prove to be positive. The lead indicator has clearly bottomed out, something good for metals demand and prices. There would be stronger growth later this year, increasing the likelihood of a moderate rate of expansion in developed world industrial activity over the next six months. Technical analysts see July as a strong month for copper. Buying
The past week was bullish for the metal. There is the likelihood of a continued upside for a retest of 8210/8330 resistance area from Q3 2006 and April 2007. The rise could, however, be choppy. Buying on pullback is advisable.
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