The Hindu Business Line : Base, precious metals to rally in Q1 next year

IN 2005, the strongest trends have been in commodities, in particular base and precious metals. The impressive performance of the metals market during the fourth quarter of the year is set to spill into the first quarter of 2006.

Of all the base metals, copper's performance has been outstanding. As 2005 draws to a close, the rally is accelerating, not pausing, with a classic commodity bubble that is inflating rapidly.

Experts see the first quarter of 2006 as the most likely time this move will end, given historical precedence. "The history of bubbles popping in January is considerable", an analyst said pointing out what happened to gold and silver in 1980, palladium in 2001 and nickel in 2004.

Given copper's history, there is the strong possibility that the metal could top early in Q1 next year. However, prices have the potential to rise more than 10 per cent from the current levels to test $5,000 a tonne before the bubble bursts.

After that, the metal can decline by anything between 20-30 per cent and the pullback could take the price to $4,000-3,500 a tonne, according to technical strategy of Barclays Capital Research.

For aluminium and zinc, experts are holding off on calling for a top until later into the quarter.

In the precious metals market, the uptrends are strong but less pronounced than copper. These trends are expected to continue through the first quarter of next year.

Gold would remain well supported at $450 an ounce. However, the market could rise to a high of $550/0z in Q1; and in the short-term more bullishness is seen with targets above $600/oz, an expert remarked.

Silver has been an under-performer for last two years. It has substantial `catch-up' potential once it rises above $8.45/oz.

Analysts at Barclays expect it to rally strongly and view $9.00 as conservative target.