The Hindu Business Line : Gold range-bound, base metals vulnerable

Mumbai, Dec. 23 Closely tracking the greenback, gold hovered in a range around $800 an ounce last week, but ended the week considerably stronger on a combination of softer dollar, buying interest on price dips and firming crude market.

Slowing sales by the European central bank provided added impetus. Clearly, the market seems to be finding support around $800/oz. In the London spot market on Friday, PM Fix was $810.50/oz, having risen sharply from the previous day’s $795.25/oz. Silver simply followed suit with Friday AM Fix at $14.29/oz versus $13.97/oz the previous day.

Profit taking

While all the key price determining factors continue to be favourable, gold continues to remain vulnerable in the short-term to correction on profit taking. The non-commercial positions are still large.

Investor interest continues to be the market theme. In the medium term, the price risk is clearly to the upside, with the first target of $820 that needs to be decisively broken and then on to $850 and further up.

Holiday season in the Western world would see trading in the yellow metal somewhat tepid. Among other precious metals, platinum is making waves. After making fresh record highs over the past few days, platinum reached historically high levels $1,500/oz. Indications of a tight inventory situation and supply worries are also coming from a strong lease market, experts pointed out adding that while some profit taking is possible towards year-end, the tight fundamentals in platinum suggest that prices remain extremely vulnerable to the upside, even at already elevated level.

Base metals: On Friday last, covering of short positions before the Christmas break helped base metals to end the week on a high. Copper posted an impressive 4.2 per cent rise, while zinc was up 4.3 per cent.

Week-on-week, copper, lead and zinc were all up strongly, with lead being the strongest performer, up by 6.4 per cent, boosted by reports of refinery closure in China. Overall, however, the sentiment remains fragile for the complex and vulnerable to movements in the wider financial markets, lacklustre physical markets and a general trend of rising inventories.

For copper, lead and zinc, a downside risk in the short-term is seen. Copper prices may recover after first quarter the New Year, while in lead further falls may be limited with the onset of seasonally strong demand period during winter.

The potential for a sharp rise in Chinese exports makes zinc vulnerable to downside moves. The outlook for nickel continues to be weighed by the LME stock-build and stainless steel weakness. A recovery in stainless steel in Q1 would support prices.

Crude: Tighter global oil balances and falling stocks characterise the market. A counter-seasonal fall in OECD stocks in Q3 and in Q4 so far coupled with the US crude stocks falling below the 5-year average for the first time in more than 3 years is sending bullish signals.

Demand-supply fundamentals are tightening, with Asian demand staying robust. A sustainable reversal in prices is not expected as the sentiment remains price positive. Experts believe, among all commodities, crude has the best chance to outperform others with a sharp price spike.

It should come as no surprise if prices breach the psychological $100 a barrel early in the New Year.

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