The Hindu Business Line : Gold likely to test $600/oz this week

Driven by strengthening dollar and the broader bearish sentiment spreading across most commodity markets including metals, gold prices remained generally weak and fell sharply towards the end of last week. LME cash price was $ 613.90 an ounce on Friday.

There is strong possibility that the psychological level of $600/oz may be tested this week. However, the market has witnessed several times in the past that buying interest resumes at lower levels. This week could be no different because the overall sentiment towards the metal remains positive. Despite the drop, gold prices are still trading amid recent ranges and last week's move perhaps does not represent the beginning of a major downward trend.

On the other hand, the yellow metal is more likely to continue to trade largely sideways for the next 4-6 weeks. The metal will likely take the lead from movements in other commodity markets and in the Euro/USD.

The current dynamics in the macroeconomic situation and in the oil market seem to be developing in a way that should benefit gold in the medium term underpinning investor interest as the last quarter approaches. Technical analysts, however, sound a note of caution.

Many of them paint a fairly bearish picture, pointing to downside targets towards last month's lows and confluence of support at $ 605/595 area.

Overall, choppy trading conditions are likely to prevail in the gold market. Geopolitics, energy prices and inflation all seem to have run their course. Market participants are waiting for fresh leads that would set direction. With the onset of festival season and approach of kharif 2006 crop harvest in India, there could be fresh demand for the yellow metal. It would be a worthwhile strategy to buy on price dips.

Interestingly in the precious metals market, while platinum too fell pressured by gold prices, palladium bucked the general downward trend, gaining 1.5 percent to close on Thursday at $ 336/oz, the highest level since June 7. LME cash price was $ 334/oz on Friday.

Speculative buying on news of continued strength of Chinese palladium demand was most likely the catalyst behind the move, according to analysts.

Chinese imports in the first half of 2006 were higher 68 per cent year-on-year, suggesting that the impressive growth in Chinese palladium demand over the last few years could have continued into the current year.

Oil prices continue to track lower. Together with agriculture, energy is the weakest performing sector since the start of July. However, analysts assert the downside from the current levels ($ 70 a barrel) looks rather limited. The Iranian nuclear enrichment issue is said to be once again moving to the forefront of market concerns.

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