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Weak dollar, firm oil prices push gold to 28-year high

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Rising production costs too contribute to higher average prices

A file picture of gold Jewellery displayed at a showroom.
A file picture of gold Jewellery displayed at a showroom.

G. Chandrashekhar

Mumbai, Oct 14

Riding on the back of a host of supportive factors including global macroeconomic pressures and the US Fed Funds rate cut, gold surged to a 28-year high of $753.60 an ounce towards the end of last week.

Fresh US dollar weakness and firmer oil prices propelled the metal upward to a new high.

Rising production costs too contribute to higher average prices. In London, Friday PM fix was $749.50/oz.

Further gains towards the next target of $760/oz are expected.

Gold lures funds

Funds are increasingly attracted to the yellow metal following its recent price performance.

In India, the world’s largest gold market, the effects of high and rising prices are felt rather strongly. Offtake is slowing down. Ongoing crop harvest and festival demand may save the day for the metal. But if prices exceed the psychological barrier of Rs 10,000 per 10 gm, further demand compression is most likely.

According to technical analysts, in the short term, although the market looks undecided at the moment, a close above 753 would suggest it is all systems go for gold to retest the all-time high at 850.

However, if the market were to reject 751 early this week, then a correction to 710 is possible.

In the medium term, the market has to break higher, they assert. Consolidation above 685 suggests a test of the all-time high.

Base metals

Most metals moved up by 2-3 per cent last week, with the exception of copper which fell by 1.9 per cent following its previous very strong rally.

Nickel saw gains for three days in succession. Prices hit a high of $32,725 a ton on supportive technicals and a gradually improving fundamental outlook.

Tin prices were holding around $16,000/t even as the last quarter is expected to be the period when supply tightness becomes more acute.

As for copper, chartists assert the market is in the middle of a 7,885 to 8,315 range. In the sessions ahead, further range trading is expected.

A close below the recent low of 7,885 would suggest a deeper pullback towards 7,715 and lower.

Aluminium continues to drift higher.

Further gains are not ruled out, although more likely the market will witness range-bound trading during the week.

(This article was published in the Business Line print edition dated October 15, 2007)
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