The Hindu Business Line : Safe-haven buying bolsters gold price

From a technical perspective too, choppy conditions are likely to persist in the gold market. The metal is likely to trade within the broad range of 864/919. There will be support at 848 which will limit the downside potential.

G. Chandrashekhar

Mumbai, Sept 28

Financial and monetary uncertainties buffet the commodity markets. This is in addition to growth concerns and overall negative sentiment. Obviously, risk reduction is the in-thing. The strong run of the US dollar seems to have decelerated at least for the time being even as the rescue package for the financial sector ran into some kind of rough weather on Friday.

While the negative sentiment pressured metals market lower, gold proved to be an exception, with large safe-haven buying that bolstered prices. In the London spot market, the yellow metal climbed 1.5 per cent to $902 an ounce (PM Fix) as investors sought a safe haven amidst uncertainty.

Clearly, the gold market is sure to continue to tango with the movements of the greenback vis-À-vis the euro. The question is whether the $700 billion bailout package would widen the fiscal deficit and, thereby, enervate the dollar or whether it would assure longer-term US financial stability, which will prove positive for the currency.

Investor interest is the key given that there is little change in the underlying demand-supply fundamentals. The market is likely to remain volatile and trade in a wide range until conditions crystallise.

It may be safer to limit exposure in the short-term because of possible wild swings. It is well known, high and volatile prices lead to demand-compression in price-sensitive markets such as India.

The US dollar remains vulnerable to the downside. Caution is advised.

Base metals

Uncertain market conditions resulting from a combination of macro-economic concerns and financial sector woes are weighing heavily on the metals market, even as fundamentals have been pushed aside.

Admittedly, there still are supply-side concerns; but these are largely neutralised by softening trend in consumption.

A sustained pick up in buying activity will lead to price performance. Until demand conditions normalise, the base metals markets will be volatile.

Lead has proved to be one of the best-supported metals rising by 12 per cent over the week. But the sentiment in the complex may cap further upside. There is further downside to copper and zinc prices.

According to technical analysts, in the short-run, copper trade is likely to be range-bound.

The sideways trade could oscillate between the resistance at 7,200 and range low of 6,625. The risk of further dollar weakness means a further correction is possible.

On the other hand, aluminium has the potential for an upside correction and consolidation in the short-run, although the larger bear trend remains intact. Rising production costs will provide support.

Crude

Demand is weak in the OECD area (industrialised countries) and in the short-term, further weakness may set in. The leading indicators point to an economic slowdown in the region. OPEC supplies are likely to be stressed because of problems in Nigeria, while Saudi Arabia may scale-back output. Non-OPEC supplies continue to be poor. Supplies from the US gulf are yet to resume.

The market has the potential to move either way; and indeed, the upward and downward risks are fairly balanced at present. Yet, overall sentiment is one of weakness caused by macro-economic uncertainties as a result of which prices may be subject to further weakness.

Expect prices to oscillate between $90 and $110 a barrel. In the medium-term, demand is expected to pick up and the US dollar gain strength. Crude may then consolidate above $100 a barrel.

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