The Hindu Business Line : Gold seen range-bound in H1

Prices will be largely confined to $490-550 an ounce range, GFMS predicted, citing both demand and supply side reasons such as a slump in jewellery demand, potentially substantial growth in scrap supply, improvement in mine supply and slower producer de-hedging.

There was an impressive overall rise of 5 per cent in jewellery demand last year. However, it concealed gains that were restricted to the first half of the year, according to observers. In H1 of 2005, Indian demand was robust as rupee prices were only 3 per cent higher, while H2 demand was extremely weak.

With the current price strength, jewellery demand can be expected to fall even further, and GFMS is looking for a near 25 per cent year-on-year fall in global jewellery demand in H1 of the current year.

On the supply side, a modest one per cent increase in mine production was concentrated largely in H2. GFMS expects output to rise by a stronger 5 per cent in H1 this year, largely due to supplies from new mines.

Producer de-hedging continues to be slow, recording a 54 per cent year-on-year decline to 195 tonnes in 2005. This slower pace is forecast to continue in 2006, in line with a smaller hedge-book and reduced likelihood of buyback.

Net official sector sales surged by 40 per cent to 663 tonnes in 2005, mainly as a result of sales by European central banks.

Interestingly, despite stronger dollar and cautious GFMS outlook, participants in this bull market continue to act on positive news and largely ignore negative news. Funds continue to play a major role in the market. Firming crude oil prices, unresolved conflict over Iran's nuclear research and new terror threats are cited as reasons for price spike.

"Despite absence of positive news, gold prices are on the up, demonstrating that the metal's performance is truly resilient," commented a bullion market expert.