Business Daily from THE HINDU group of publications
Monday, Oct 16, 2006
Gold & Silver
Agri-Biz & Commodities - Metals
Metals set to soar; gold seen consolidating
Mumbai , Oct. 15
After the recent price falls and cautious market participation, gold looked well supported on last Friday with prices breaking through the psychological $580-an-ounce-mark.
The metal is seen consolidating, even as the price action last week was attributed to positive investor sentiment.
Whether gold has bottomed is debatable. Arguments on both sides are equally forceful.
From a broad macro perspective, for the short term at least, there is nothing to suggest a sharp move higher. Oil prices remain under pressure and the dollar is fairly steady, while geopolitics has taken a backseat.
The recent weakness is largely attributable to a significant deterioration in sentiment, rather than to any change in fundamentals, and therefore, stabilisation and recovery of the market could be a long haul process, an expert argued.
From a technical viewpoint, analysts remain positive in the near term targeting a move back above $600/oz. Belief is now gaining ground that the downside in both oil and dollar is rather limited and that both are set to reverse direction in the month ahead.
Such an eventuality will provide gold market with a clear direction in the medium term.
More interesting than precious metals are base metals, some of which are setting fresh historical highs. Supply disruption is the theme. Importantly, market fundamentals continue to provide strong underlying support to prices.
A further upside in the light of a combination of factors - market tightness, seasonally strong fourth quarter demand and downtrend in inventory levels - is clearly anticipated.
Lead, nickel and tin prices were seen powering ahead last week while price action in aluminium and copper was muted. Lead has continued to set a series of fresh all time highs and touched a new peak of $1,512 a tonne on Friday.
Similarly, nickel prices have held on to gains to strengthen further, also setting fresh all time highs at $ 30,800/tonne as LME stocks declined.
The long-term outlook for nickel looks better considering that stainless steel demand globally is unlikely to falter anytime soon. Tin prices breached $ 10,000/tonne on Friday rising to a 17-year high on the back of supply disruptions in Indonesia (three smelters reportedly closed) and violence in Bolivia's largest tin mine.
Indonesia's is world's second largest refined tin producer after China. As the tin market places high reliance on Indonesian supplies, tin prices can be expected to gain support from any supply disruption there.
Prices (front month - WTI) continue to test support around $58 a barrel, weighed down by uncertainty over OPEC production cuts and rising US oil inventories. Whether OPEC output cut should be from quota levels or actual production seems to be a sticking point.
The market is also seized of China's import data that suggest rising volumes.
Quite apart from gasoline and diesel demand to fuel economic growth, at current prices, China's strategic stockpiling of crude is seen as a distinct possibility.
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