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G. Chandrashekhar

Mumbai , Nov. 2

GOLD seems to be interestingly poised. There is the distinct possibility that it can move either way - up or down from the current level.

Already, the yellow metal has shed around $10 an ounce in the last few days with long liquidation driving prices down.

The prospects for investment in gold in the medium to long-term appear solid, because the macro-economic background - especially large twin-deficits in the US - continue to be pro-gold which is further boosted by geopolitical tensions and supportive fundamentals.

What is of concern is the scale of the fund long. If this position were to rapidly unwind for whatever reason, a brief retreat well under $450 an ounce is a distinct possibility, according to analysts.

On the other hand, technical analysts suggest gold could test $500/oz even before the year-end.

Even if a short-term sell-off takes place, there still is the strong physical demand which may preclude a sustained price decline. With every price dip, investor interest could increase.

Overall, therefore, it is going to be a cat-and-mouse game between bulls and bears in the bullion market. While demand and inflation concerns are expected to keep the market firm, speculative length creates a downside risk that cannot be ignored.

Also, in price sensitive markets such as India, higher prices (further burdened by weakening rupee) would lead to a slowdown in demand growth, if not demand compression. The festival demand in the country has already begun to taper off.

Investor interest may briefly push the yellow metal towards or even beyond the psychological $500/oz level by the year-end or early 2006; but for the market to sustain at that level would be difficult.

Indeed, on current reckoning, it may be reasonable to expect gold to trade in the $450-480 an ounce range over the next two months.

Silver to stay firm: For the remainder of the year, silver prices could stay firm because of physical demand, continuing investor interest and lack of supply side pressure.

Prices may hold above $7.50/oz with a potential to briefly move even higher depending on emergence of speculative interest.

However, a correction could follow after the early part of 2006 with weakening physical demand and possibility of exit by speculators. Prices have the potential to decline to around $6.80/oz.

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