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G. Chandrashekhar

Mumbai , June 21

GOLD continues to be the focus of attention in the precious metals market as prices push above 440 an ounce in dollar terms and above 360/oz in Euro terms.

The key to the move continues to be the major public arguments taking place among European Union members, and between Britain and France, in particular.

As a result, the move is likely to continue to find support until an agreement is found, although that is still far from imminent. However, gold may see long liquidation this week as key levels have now been achieved, cautioned Mr Kamal Naqvi, precious metals analyst with Barclays Capital.

The latest CFTC data show that gold's push higher has been driven by both short-covering and fresh buying, with the net long futures only position rising by more than a quarter.

Asserting that contrary to reports, the rally has neither been driven by funds selling euros and buying gold (the relative size of the gold market makes that impossible), nor is it due to physical supply and demand, Mr Naqvi pointed out that the current trading tool of regular gold market participants has switched from simply following euro-dollar to a more technically driven approach on the basis of both the euro gold and dollar gold charts.

"Hence, we expect prices to test higher in the short-term, but the threat of profit-taking is looming ever larger," the expert said.

Silver has also been firmer but much less impressive than gold in early trading. Prices will need to break back above $7.50/oz to gather real upward momentum again, experts believe.

Evidence of the difference in sentiment toward silver is contained in CFTC data, which showed a decline in net long futures position as long liquidation outweighed short-covering. This probably reflects the unwinding of gold-silver ratio trades that were popular until the latest rally in gold prices, the analyst commented.

Crude Market: WTI front-month oil closed at an all time high of $58.28 per barrel on Friday, with delivery months from October 2005 through March 2006 settling at above $60/bbl. The main reasons for the continued momentum remain the same as they have been throughout the strong push up over the past month that is the perception of tight balance for the back end of the year in a market with limited slack, according to Barclays Capital.

The lack of flexibility has also greatly increased the sensitivity of the market to any potential interruption, and in that context, the temporary closure of the US consulate in Nigeria has not been a calming factor. In addition, the pace of the move has been enhanced by the relative absence of any obvious significant short-term demand effects. Contrary to earlier expectation, the US oil demand has been rising.

The latest CFTC data showed non-commercials increased their net long position in the week ending June 14, with the net long crude oil futures position rising manifold. "There is still considerable scope for further short-term money flows to add to the upward momentum," a research report said.

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