Business Daily from THE HINDU group of publications
Monday, Nov 06, 2006
Gold & Silver
Agri-Biz & Commodities - Commodity Markets
Yellow metal continues its upward momentum
The upward momentum looks to be gathering pace with the metal breaking through key resistance levels underpinned by independent interest.
Seasonal factor also seems to favour the yellow metal as November and December are strong months for the gold.
Chennai , Nov. 5
Precious metals overall had a wonderful week, while gold prices posted a strong performance last week with the market threatening to conclusively breach $630 an ounce. The yellow metal continued its impressive run, with prices managing nine consecutive higher sessions (on an open to close basis) for the first time since June 1997.
A fall in the dollar triggered by a string of weak US economic data earlier in the week was the key catalyst behind the rally.
According to experts, the upward momentum looks to be gathering pace with the metal breaking through key resistance levels underpinned by independent interest rather than finding direction in external factors.
On Friday, despite very limited movement in Euro/USD as also crude, the mood was buoyant. Seasonal factor also seems to favour the yellow metal. Traditionally, November and December are strong months for gold.
Technical analysts assert that the recent strength reinforces the bigger picture of further upside in the near term.
Risk For Pause
However, it must be stated that with daily momentum pushing into overbought territory and the next resistance level of $632 approaching, the risk for a pause in the uptrend is growing.
Base metals are bugged by growth concerns in the US even as the latest economic data had nothing to cheer. While US faces clear signs of a slowdown, other regions remain robust. Global industrial production continues to be still strong although down to 6.1 per cent year-on-year in August from 6.5 per cent in May and June.
There is a strong positive relationship between economic growth and metals consumption. Base metals prices have remained strong not only because of demand factors (more particularly, robust Asian demand), but also due to supply uncertainties.
Inventory levels are low enough to cause concern. Until the metals markets go into surplus for long enough period to lift stocks to much more comfortable levels, prices will remain high. Zinc and lead were the two metals to make gains for the week as a whole. Zinc was boosted by continuing stock drawdowns.
There is possibility of some nervousness creeping into copper, which is witnessing some inventory increases and a softer physical market.
Copper has traded sideways for several months in what is becoming a narrower band. When it breaks out it is likely to move significantly, and right now it looks as though that break could be lower, remarked an analyst adding that the issues still supporting prices are the risk of strikes and low market stocks.
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