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— H. Vibhu

Continued dollar weakness, crude oil strength and geopolitical tensions remain favourable for the yellow metal.

G. Chandrashekhar

Mumbai, Aug. 12 The recent turmoil in equity markets and fear of contagion effect of the sub-prime debt problems in the US notwithstanding, the general outlook for the metals market appears positive on current reckoning because of strong prospects for the global economy and huge investment in infrastructure in many developing countries.

The OECD economic indicators released last Friday point to the possibility of recovery in demand; and broadly suggest the current panic in the global market is exaggerated and that fears of imminent US recession may be unfounded.

As far as the gold market is concerned, the key underlying dynamics remain largely the same with the dollar in particular continuing to provide most of the market direction.

On Friday last, London PM Fix was $668.50 an ounce, up from $662.60/oz the previous day. As the news of US Federal Reserve injections into the financial systems filtered through, gold prices in the New York market rose by 2 per cent to as high as $676.50/oz. Silver bucked the trend. London AM Fix for Friday was $12.69/oz, down from $12.98/oz the previous day.

Gold trade will continue to remain choppy. Investor confidence is key to the market; but investors have been wary. With every move higher, profit taking has become the norm.

On the positive side, fabrication demand is seen stabilising. Continued dollar weakness, crude oil strength and geopolitical tensions remain favourable for the yellow metal.

Although potential for higher highs exists, gold prices are in need of a new catalyst to reinvigorate their challenge towards higher levels. The resistance at higher price levels needs to be decisively broken for the market to move higher towards $700/oz.

Base Metals

Last week was not that bad for copper, aluminium and zinc, with only 1-3 per cent declines on the week, well-within normal trading ranges.

The major falls for the week were in lead, down by 11.4 per cent, and nickel, down by 9.4 per cent.

The latest open interest data in aluminium suggest that large new shorts have been out in place in recent weeks as prices have corrected by about 10 per cent from their recent peak. For short-term trading, lead and zinc looks like the base metals with the best upside potential, while nickel has the clearest downside risk.

Lead market fundamentals remain strong, with significant production losses hampering supply growth and the downtrend in LME stocks accelerating.

Meanwhile, the zinc market fundamentals are also tightening and LME stocks continue to fall.

Strong demand and tightening short-term physical supply still support a potential sharp spike higher.

With stocks rising fast, copper prices seem to run a slight downside risk.

Aluminium market fundamentals are not inspiring. Range trading may continue.

Tin fundamentals now look to be undergoing further tightening; so there is still significant upside potential to prices.

Stainless steel de-stocking has weakened the nickel market, boosting LME nickel stocks.

A further downside risk to prices exists before the potential for a price recovery later in the last quarter.

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