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G. Chandrashekhar

Mumbai, Jan. 13 Bullion trading witnessed choppy conditions last week with gold and silver prices rallying to newer heights in New York and London markets. The Fed Chairman, Mr Bernankes’ speech and the weaker dollar let gold prices steam ahead to test $894.9 an ounce on Thursday when gold closed at another all-time high of $892.7/oz and on Friday extended the gains to test $898/oz.

There were reports of the February contract on Comex breaking $900/oz. Continuing to take a cue from gold, silver rallied to close at a 27-year high of $16.16/oz. Platinum prices too tested all-time highs ($1,563/oz), buoyed by strong fundamentals.

In the London market, on Friday, the gold PM Fix was $891, up from the previous day’s $884.25. Silver too spurted to $16.06 from $15.62 (AM Fix).

Experts are revising their 2008 gold price forecast up. Gold prices are set to post positive gains for the seventh consecutive year on an annual average basis. The market fundamentals remain tightly balanced and external drivers remain positive. However, it is investor demand that is key to price strength.

Having tasted success, investor interest is expected to continue through 2008. Factors supportive of further gold price strength include higher inflationary expectations, broader economic concerns, geopolitical tensions and possibility of Fed rate easing.

Technical analysts assert, on both short-and medium-term charts, gold is poised for further gains this week. Old resistance levels are now turning fresh support levels, the evidence of a healthy uptrend. A run at 900 seems imminent. In the medium-term, a closing break of 850 indicates that the uptrend has resumed a run towards 1,000 in 2008, and potentially beyond.

Platinum is seen a bellwether for precious metals in general. The near-term support is at 1518, and the outlook remains positive. In India, gold prices continue to reflect international trends. However, the sharp upward movement in prices is seen driving retail buyers and actual consumers away. There is demand resistance at the current levels of over Rs 11,000 per 10 grams. However, speculators holding long positions on the bourses have benefited immensely from the ongoing bull run. Trading volumes are expected to continue to be robust so long as the price rally holds.

Last week, zinc fell by 4.5 per cent (even though it was the metal with the most index fund buying), while copper gained the most, up by 5.9 per cent. The latest set of OECD lead indicators point to a weakening outlook for OECD industrial production growth during the first half of 2008. At the global level, the sharp drop in the six-month rate of change in lead indicators has resulted in major economies moderating from 5.7 per cent in May to the (still solid) level of 3.2 per cent in November.

World industrial output growth is likely to continue to slow until the middle of 2008, experts have pointed out.

This will have implications for metals prices because the markets are vulnerable to growth concerns. However, weaker dollar and prospect for additional volumes of base metals buying have lent a positive start to the year. As far-forward prices are strong, it is reasonable to believe that market participants perceive the nearby price weakness as a temporary feature. Any slowdown in the US metals demand may be offset by the strength of growth in other parts of the world. Inventory levels need to be watched constantly.

Crude: The global oil market continues to tighten with stocks in major OECD countries including the US, Europe and Japan showing deterioration. In the US, crude oil stocks have continued to widen their gap to the 5-year average and are now some 30 million barrels below last years level.

Looking into 2008, global oil balances are likely to undergo further tightening. The constructive picture for 2008 suggests annual average of oil prices will rise again for the seventh year in succession. From the 2007 average, prices of WTI and Brent are likely to rise by $13-15 a barrel in the current year.

Admittedly demand growth prospects have turned somewhat uncertain due to deteriorating macroeconomic conditions; however, there exist severe supply-side constraints which could force prices to move up. The potential of supply growth from non-OPEC regions is rather limited primarily due to accelerating decline rates at ageing oil fields.

More Stories on : Gold & Silver | Petroleum | Commodity Markets

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