The Hindu Business Line : Divergent trend seen in metal prices

EVEN in the best of times forecasting commodity prices is a rather tricky business. And now, with so much uncertainty in the global markets, including geo-political concerns that surface from time to time, it has become almost hazardous.

No wonder, commodity analysts across the world seem to be split wide open as far as commodity price behaviour in the second half of this year and forecast for 2005 are concerned. A Reuter's mid-year poll of commodity analysts released last month has revealed a wide split between bulls and bears. The base metal price forecasts for 2005 show a wide divergence.

According to experts, such a divergence is not surprising given that the historically high level of current prices, set against low levels of inventory, makes the outlook for industrial metal prices extremely vulnerable to different economic outlooks.

In case of gold, the consensus amongst analysts is that in the current year prices will average $402 an ounce and range between a high of $422 and a low of $376 an ounce. Actual price in the first half of 2004 averaged at $401/oz.

For 2005, the consensus forecast of analysts is $405/oz. They expect the yellow metal to trade in a wide range — between a high of $455 and low of $330 an ounce. The 30.9 per cent spread of forecasts shows how divergent the views of the analysts are.

Barclays Capital has forecast $350/oz as the average price of gold for 2005 and has also revised the forecast for 2004 down to $390/oz, from the earlier $420/oz.

As for silver, the analysts' consensus price for 2005 is $6.15 and for 2004, $6.32 an ounce. In first half 2004, the actual price of silver averaged $6.47/oz.

Commenting on the consensus prices, Mr Kamal Naqvi, precious metals analyst with Barclays Capital said: "For 2005, we are modestly higher than consensus for the base metals, except for nickel, while we are more bearish than consensus for the precious metals".

The Barclays forecasts are based on the positive global economic view and expectation that industrial metals prices shall have peaked by the first half of 2005 and fall during the second half of 2005. The precious metals forecasts are influenced by the view that Euro: US$ will be 1.16 in one year's time, he remarked.