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G. Chandrashekhar

Potential for further upside in crude prices

BREAKING RESISTANCE: Gold bars displayed at a jewellery manufacturing unit in Thrissur, Kerala. Gold prices are seen rising as it has broken the resistance level of $656 an ounce. - K.K. Mustafah

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Mumbai Feb. 4 The energy market is quickly recovering lost ground. On Thursday, oil prices reached a new intra-day high, with WTI front month hitting $58.86 a barrel, before easing back a little.

Very clearly, prices have now recovered more than 70 per cent of the losses made since the start of the year and there is still potential for further upward price movement.

This possibility stems from a combination of improved market sentiment and tightening fundamentals, according to experts.

Supportive data

The flow of oil data has been overall supportive. The latest set of US weekly oil statistics indicated that US oil demand has rebounded strongly in January after a weak December.

Obviously, colder weather has helped. Iraqi oil exports have been on a downward trend, while uncertainties abound in Nigeria.

2-way rally

According to a London-based chartist, as oil rallies, price action is becoming increasingly two-way. With daily momentum reading overbought, further potential upside gains are seen as limited.

Gold resumed its upward march last week with prices relentlessly moving northward, ably supported by dollar weakness and firmer oil prices. On Thursday, the metal traded to an intra-day peak of $661.50 an ounce — a high not seen in over six months.

However, strength in the dollar and general metals sell-off on Friday saw the precious metal correct down sharply.

The metal closed at $645.70 (LME cash PM fix) on Friday.

Platinum and palladium too followed gold. Platinum first hit its highest level in over two months of $1189/oz and palladium trading in a wide range, peaking at $342/oz. On Friday, LME PM fix was $1165/oz and $339/oz respectively.

Remain Positive

According to technical analysts, investors could remain positive on gold in the short to medium term. The metal has already broken the resistance level of $656/oz.

Unless gold closes back below $640/oz, the trend looks to remain positive targeting the $676/oz peak of July 2006. On the other hand, if the metal falls below $640, hope would evaporate as it would suggest a deeper correction to $615 in the first quarter.

From a macro perspective, the dollar could be influenced by US data releases; primarily, the January non-farm payrolls.

More Stories on : Commodity Markets | Petroleum | Gold & Silver

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