The Hindu Business Line : Positive sentiment in gold may continue in 2008

Outlook
Gold prices to average a little over $670/oz for rest of 2007.
Fabrication demand for silver seen to stay robust.
Current rally in silver may not sustain.

G. Chandrashekhar

Mumbai, Aug 2

While the overall uptrend in the precious metals complex is expected to remain intact well into next year, in recent months gold has exhibited a mixed trend first by treading higher on the back of strong physical demand, notably from price sensitive markets such as East Asia, India and West Asia, and weakening in recent weeks of July because of lack of investment demand.

The outcome of a relatively benign demand-supply outlook should, therefore, see gold prices for the remainder of the year (2007) average a little over $670 an ounce, producing an average of $655/oz for the full year, London-based Natixis said in its third quarter commodity market review.

Notwithstanding current softening of prices, the agency is bullish towards the yellow metal. The generally positive sentiment is also expected to carry over into 2008 due to rising support levels, and should be sufficient to produce an average for next year of $680/oz. Of course, the view is premised on strong expectation that the flow of investment funds will continue to come into commodities and gold would be a beneficiary. Concerns relating to global financial markets and the deteriorating value of the US dollar may encourage investors to seek gold.

In addition, any fall in price would result in rising physical demand as shown by buying interest displayed by fabricators at every price dip.

Silver may drop

Natixis analysis of silver market fundamentals suggests that unless and until lower GDP growth hits industrial offtake, fabrication demand for silver should remain robust and largely immune in the short run to higher price levels. The agency believes the current rally may well not be sustained much beyond the prevailing price levels and silver could drop back to well below $13/oz.

However, a further surge in investor interest is quite probable before the end of the year. Average prices in 2007 could as a result end up above the $13/oz mark, with further gains to be seen in all likelihood in 2008, with the average price next year close to, if not perhaps higher than $14/oz.