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G. Chandrashekhar

Mumbai, Oct. 19 Global growth concerns and financial market turmoil continue to batter the commodity market even as investors turn cautious and constantly look for avenues that are not only safe but also bring returns.

Falling crude market and poor demand conditions for base and industrial metals continue to affect the overall market sentiment.

Investors are exiting positions that they are unsure of.

Volatile conditions marked trading last week, with price movements on a wide range - as large as 5 per cent. Eventually, the precious metal took a beating despite all the noise associated with its price performance and safe-haven status. Inflation too has receded to the background.

Speculators liquidated the long positions, once again proving that investor interest is fickle. Improved stock market performance would force investors to flee the yellow metal by reducing their exposure even as the US dollar continues to hold against the euro.

On Friday, the London PM Fix was $784.50 an ounce, down from $ 802.50/oz the previous day. Silver followed suit with Friday AM Fix of $ 9.56/oz, down from previous days $ 9.99/oz.

On the positive side, if the market stays modestly below the psychological $800/oz level, it could spur some physical buying which in turn will provide support. Seasonal buying from countries such as India holds the key; but demand growth in this price conscious market is muted by high local prices resulting from a weaker rupee.

The outlook for the gold price would depend on developments in the global financial market and the relative strength of the US dollar. There is strong expectation that financial conditions would stabilise and the dollar may appreciate against the euro. In the event, gold prices will have to decline to more realistic levels, the prospect for which appears to be some time in 2009.

Technical analysts see bearish tone in the short-term as the outlook has turned negative. Consolidation below 800 is a bearish development for a move towards 730. Silver could perform even worse. It has slipped through the 2006 summer low at 9.42 and is on course to test 8.45 and below.

Steadily falling prices have once again turned the attention of the world to this market raising the question of where the bottom lies.

On Thursday, front-month WTI contract fell below $70 a barrel, the lowest since August 2007. The US crude inventories have moved back slightly above their 5-year average. The OPEC’s announcement that the emergency meeting slated for November 18 has been advanced to October 24 has raised anxieties.

It appears increasingly likely, based among others on comments by various OPEC ministers, the meeting may decide to cut production by anything between one million and 1.5 million barrels a day.

What is the price the OPEC would defend is the multi-million dollar question.

More Stories on : Gold & Silver | Financial Markets

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