Financial Daily from THE HINDU group of publications
Thursday, Dec 19, 2002
Agri-Biz & Commodities - Precious Metals
Gold seen on the boil in near term
MUMBAI, Dec 18
GOLD never ceases to entice and enchant. The recent upward march of the yellow metal following a spate of geo-political and financial concerns has started to evoke tremendous interest in the bullion market.
On Tuesday, gold touched $341.25 an ounce, the highest level in five-and-a-half years. So, where would prices go from here?
Everyone agrees that the market has the potential to remain firm and even harden further; but perceptions of the extent of further rise differ.
The global expansionist stance of the major central banks together with the overvalued markets and currencies is seen supporting gold's fundamentals. World demand for gold continues to increase in part due to the unwinding of gold hedges, Asian demand and a pick up in investment demand.
The underlying fundamental supply/demand equation remains strong with an annual supply around 2,500 tonnes, but demand at 4,000 tonnes.
Lack of confidence in the financial system following the $8 trillion meltdown in the stock market and the threat of war are pushing gold prices up and individuals back into the gold market, according to Mr John R. Ing.
Making out a case for a bull market, in his market commentary, Mr. Ing asserted, "A domino-like deflation of the world financial markets will cause the pendulum to swing from paper assets to hard assets. Gold will trade at $ 510/oz next year based on experience of a continuing bear market, improving supply/demand fundamentals, chronic geopolitical tensions and of course, a collapse of the dollar''.
There is belief that the recent increase in the price of gold is due to the diminished enthusiasm for dollar assets and that gold will continue to outperform the world stock markets. "Portfolio managers faced with huge losses in currencies, bonds and equities will have no alternative but to invest in gold,'' Mr. Ing asserted.
However, Mr Kamal Naqvi, analyst with Macquarie Research Equities holds a different view. "It is going to be very heavy going for gold above $ 335/oz towards key resistance of $340/oz.
It would require very aggressive buying to absorb the selling that is likely to occur through these levels and it is difficult to believe that such buying will occur without a major catalyst - be it economic or political''.
Events of the last few days have, however, proved that the potential for aggressive buying of gold at these levels does exist.
"At the very least, this means, we can expect gold to trade in a higher range in the coming weeks - lifting from $310-320/oz to $320-340/oz,'' he noted adding that there may be greater potential for gold to react to "events'' such as the much-anticipated military action by the US against Iraq than has seemed likely given the recent stable price action.
All in all, it means that over the next few weeks gold is likely to be more interesting than many in the market expected-at least while the current cauldron of financial and geo-political concerns continues to boil.
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