The Hindu Business Line : Dollar to decide gold price direction

Mumbai June 3 In recent days, gold has been taking much of its directional cue from the dollar, and it is likely to continue to remain that way in the coming days.

Last week, the market was buffeted by dollar movements as also US data releases. Towards the end of a volatile week, gold put in a more positive performance. Tracking the dollar and crude prices, the metal gained strength.

`No more sales'

Announcement from European Central Bank that it has no plans to sell any more gold this year added to the upward thrust.

In London, on Friday, the PM Fix was $666.50 an ounce, up from $659.10/oz the previous day. Silver was fixed (AM) at $13.53/oz versus $13.25/oz the previous day. In New York, spot gold inched towards $670/oz on Friday, almost $10 up from the previous day.

Geopolitical considerations and currency gyrations would continue to impact the market. Foreign exchange experts have turned more positive on the dollar's short-term prospect as incoming data suggest that the US economy is poised to stage a vigorous acceleration in the second quarter.

Should this expectation materialise, then the dollar can be expected to gain further strength, something that will not bode well for the yellow metal, at least in the short-term.

Different view

Technical analysts, however, see it differently. From a technical perspective it is said a clear bullish divergence is developing on daily momentum oscillators further increasing the odds for additional topside to come. However, if prices do not breach the $665 levels, then further downside cannot be ruled out.

Following the softening of sentiment, there was redemption of about 25 tonnes from the StreetTracks Gold ETF last one month, the largest withdrawal recorded over a month. However, the inflows are expected to turn positive if the current nervousness subsides. Total gold held in trust currently is 630 tonnes.

Technically, silver continues to outperform in the near-term. There could be a run towards the mid-April high of $14.30.

DATA SUPPORT

Base metals: Copper prices rebounded over the past week (up nearly 4 per cent) on stronger physical buying following the pull-back in prices from over $8,000 a tonne to around $7,000/tonne and also concerns about possible impact of strike action. On Friday, metals prices were supported by stronger economic data mainly manufacturing data including US ISM purchasing managers ' index and improved US consumer sentiment.

The latest LME inventory data show mixed flows while both copper and aluminium stocks at Shanghai futures exchange fell over the week. LME zinc stocks continue to be at their lowest levels in sixteen years.

Last week, lead prices had rallied to a fresh all-time high breaching the $2,300/tonne level despite LME stocks rising. Experts see a further upside risk to lead in the light of market's tightness amid supply disruptions, strong demand from the battery sector head of the summer driving season and recent changes to China's lead export taxes.

Oil deficit

Crude: A recent survey showed that OPEC production edged higher in May, increasing by 1,20,000 barrels a day with Algeria, Saudi Arabia and UAE accounting for the bulk of the increase. At 26.76 mbd (million barrels a day), OPEC production continues to flow at roughly one mbd below last year's level and some 800,000-900,000 bpd below that recorded in October.

With global oil balance showing deficit in the order of magnitude of 1 mbd, an OPEC production increase of that size is far from sufficient to rebalance to bring the market into balance, experts assert.

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