The Hindu Business Line : Firmness in gold prices temporary

, AS most gold-specific reasons to be positive towards the commodity are weakening, in addition to the physical gold market being in surplus, the current market environment would not justify anything other than a temporary rally higher in prices, according to experts. They assert that physical demand, de-hedging and new investment products are all less supportive this year than they were in 2004.

On the outlook for the third quarter, precious metals analyst at Barclays Capital Mr Kamal Naqvi perceives gold trading at an average price of $425 an ounce (up $ 10/oz from December 2004 forecast) between a high of $460 and a low of $380.

Total physical supply of gold in 2005 is forecast 3.5 per cent higher at 3,900 tonnes (3,770 tonnes), while total demand is placed 2.4 per cent higher at 3,490 tonnes (3,409 tonnes).

With strong fund buying interest on price corrections, silver has stabilised in a dominant $6.80-7.60 an ounce range. However, silver's dependency on a relatively small group of investors is both its strength and its weakness. The resilience of fund interest means that the price may average $7.00/oz, with a high of $8.00 and a low of $6.00. However, there is insufficient momentum in silver to exceed April 2004 cycle high of $8.43/oz, Mr Naqvi asserted.

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