The Hindu Business Line : Gold medium term prospects positive

Price prospects
The US Treasury yields continue to weigh on the sentiment.
Indian demand is surely waning and is likely to remain muted until September.

G. Chandrashekhar

Mumbai, July 1 A study of the seasonal trends for the month of July reveals that among commodities, in terms of median returns, a market with a strong winning streak is WTI crude, which has produced positive returns for the past six years.

WTI has the highest chance of a rally this month.

Median Return

It is copper, though, that has the highest median gains (3 per cent). July is the best month for the metal with high odds for a rally. Aluminium is an outsider with a negative median return. It must rank the worst (0.6 per cent).

Gold: The US Treasury yields continue to weigh on the sentiment. Tactical investors increase net fund length in Comex gold. Inflation concerns are likely to haunt the US economy.

Gold prices dipped to their lowest level in recent months, despite recovery in oil prices and largely unchanged dollar. Indian demand is surely waning and is likely to remain muted until September as the agricultural season is in progress.

For all these reasons, the short-term outlook is not friendly to higher prices.

However, over the medium term, the price prospects look positive. Demand is expected to consolidate. The combination of dollar weakness, oil price strength and a tense geopolitical environment is supportive.

Market Conditions

On the downside, de-hedging has the potential to slow in the second half of 2007, while the estimated shortfall of European Central Bank selling is not expected to be as large. Gold prices are obviously in need of a new catalyst to reinvigorate its challenge towards $700 an ounce. The present market conditions provide good buying opportunity.

With the yellow metal failing to hold $650 on closing basis, technical analysts maintain a near-term downside bias for a test of $633. The market will continue to remain choppy.

Crude: Chartists say that the uptrend has resumed. In the medium-term, range trading between $60 and $72.50 would ultimately set up a test of $80.