The Hindu Business Line : Outlook for precious metals price seen positive

NO doubt, the precious metals complex made considerable gains during 2005; but the point of significance is that prices were driven not so much by fundamentals but by speculators.

Experts see the strong upward momentum - for whatever reason - create a further upside for precious metals during 2006.

There are a number of factors to boost speculative interest. But caution is advocated because prices are extremely vulnerable to sudden changes in sentiment. Large fund length means there is inherent downside risk for investors. The threat of major corrections and elevated levels of volatility have to be reckoned with.

Gold has scaled fresh multi-year highs and continues to be a favourite with investors. For 2006, gold will have more upside risks, with dollar weakness expected; but the threat of long liquidation remains, according to Barclays Capital.

In its 2006 Outlook for Precious Metals, Barclays Capital has revised gold price forecast higher by $60 to $525 an ounce, mainly to take into account current elevated price levels.

For the current quarter of the year, the average price is forecast at $550/oz and for the second quarter at $530/oz.

The role of short-term investors behind the current rally means that volatility can be expected to be high with potential to spike above $600/oz and fall towards $470/oz. At the latter level, physical market should provide good support. However, if the pick up in interest among retail and institutional investors is sustained for any reason, there could be upside risks, the report pointed out adding that the situation will have to be monitored closely.

Other precious metals, too, have recently been following gold's coattails.

Silver is likely to track gold closely because there is no compelling fundamental reason for the metal to gain much independence from gold. To a lesser extent, silver would track base metals too.

Barclays Capital has revised its 2006 silver price forecast by $1.80 to $8.90/oz and expects it to trade in a range of $7.80-10/oz in 2006. For the first quarter (Q1), forecast is placed at $9.20/oz and for the second quarter (Q2) at $9/oz.

Fundamentally, platinum is strong. Resilient fund interest and robust consumer demand support prices at historically high levels.

Average price for the year is forecast at $995/oz, while for Q1 it is $1,000/oz, going up to $ 1,010/oz in Q2.

After lagging the precious metals complex in previous rallies, palladium is attracting renewed wave of fund interest this time round. Investor interest across the sector coupled with improved fundamentals means that the metal can average $ 275/oz for 2006. For Q1, the forecast is $280 and for Q2 $ 285.