The Hindu Business Line : US data to dictate the course for gold

Losing lustre?
Data releases this week will impact the currency and thereby, the yellow metal.
Physical demand continues to be less-inspiring.

Mumbai , Jan. 3

Gold prices drifted higher over the last few days of 2006, gaining three per cent over the week and closed the year at $636.3 an ounce, above the average for 2006. The boost came mainly from a weaker dollar.

Two critical data releases this week - ISM non-manufacturing index and non-farm payrolls - will of course impact the currency and thereby the yellow metal.

Expectations

Economists expect these releases to point to potential dollar strength towards the week-end, which would be negative for gold.

However, there is expectation that in the first quarter of this year, the dollar could gradually weaken, something that will be supportive for gold. Physical demand continues to be less-inspiring in price-conscious markets mainly due to high and volatile conditions.

Industrial metal markets have opened 2007 in diverse fashion, with aluminium and lead prices moving up in early trade, tin holding steady, nickel and zinc registering small losses and copper slumping to a fresh eight-month low.

Market sentiment

Inventory changes on the LME are likely to be a major determinant of market sentiment this year, according to Barclays Capital.

Trends witnessed through late last year are expected to remain in place, with copper inventories climbing sharply higher, the downtrend in lead and zinc inventories bottoming out (with a particularly large 2,025 tonnes increase in zinc stocks), and aluminium, nickel and tin stocks remaining stable at relatively low levels.

Copper

There has been acceleration in the upward trend in LME copper stocks. A net inflow of 7,775 tonnes has been reported.

The bulk of the deliveries (4,250 tonnes) were in the US, continuing the trend that saw US copper inventories climb quite sharply during the fourth quarter 2006.

The rest of the inflow was in Europe, with 3,775 tonnes delivered into Rotterdam.

Meanwhile, Asian copper inventories continued to fall, with 450 tonnes taken out of Singapore.

Cancelled warrants in both Singapore and Korea, at a combined 6,925 tonnes, suggest more copper outflows to come, though that may not be enough to offset further deliveries elsewhere, reflecting seasonal weakness in European demand and softness in the US construction, commented Barclays Capital.

In copper, price risk in early 2007 looks to be to the downside, with strike threats having receded in Chile and in the US over the past few weeks and market sentiment still very negative as indicated by the increase in net short positions on the Comex (highest since October 2002), according to analysts.