The Hindu Business Line : Further upside seen in precious metals

Glittering outlook Weaker dollar will buoy gold investment
Downside limited; offers buying opportunity
Jewellery buying will rise on strong GDP growth in India

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Mumbai Feb 13 The outlook for gold prices is constructive, even as most of the key drivers behind the bull market are in place; the prospect of a further weakening of the dollar and a generally supportive geopolitical backdrop too remain in place, the London-based Natexis Commodity Markets said in its latest report.

This suggests that the downside is limited and any correction may offer a buying opportunity, the report argued. Recent trading behaviour reinforces the point. Despite weakness in demand from the jewellery sector, there has been buying from this source on any price moves towards $600 an ounce.

"With strong GDP growth in East Asia and India, we continue to expect some support from the jewellery sector on any dip in price," the report noted, adding that there was a tendency for some investors to move part of their assets into alternative investments such as gold. Indeed, the driving force behind the recent bull-run for the metal has been the increase in activity from the investment community, the report said.

Natexis has projected an average annual price of $670 an ounce for the yellow metal in 2007 and $710 an ounce in 2008, compared with last year's outturn of $604 an ounce and the price prevailing in late January around $650 an ounce.

Silver: Reasonable demand growth, limited supply growth and, importantly, ongoing investor interest combine to make a move towards $15 an ounce achievable, according to Natexis.

It has forecast an average annual price of $13.75 an ounce in 2007 followed by $14.25 an ounce in 2008 compared with last year's average of $11.55 an ounce.

Silver fundamentals are still supportive of the market. The potential for a further slide in dollar and shift in investment away from mainstream markets (equities and bonds) towards precious metals can have a disproportionately larger impact on markets such as silver.