Friday, July 27, 2007
Jul. 23, 2007 (The Hindu Business Line delivered by Newstex) -- G. Chandrashekhar
Supported by a combination of strong Chinese economic data that pushed base metals ahead, continued weakness in dollar and firmer oil prices, gold prices generally maintained their upward momentum.
Gold Sales
Both gold and silver gained about 2 per cent over the week. On Friday, the London PM Fix was $676 an ounce, compared with the previous day’s $673/oz. Silver, too, moved in tandem, gaining handsomely.
AM Fix on Friday was $13.29 versus $12.94 the previous day.
The market noted with caution the report of gold holdings by Swiss National Bank. There is expectation that there will be no significant shortfall in Central bank gold sales.
Moot question
The question before the market men now is how much more will the yellow metal gain before resistance sets in. According to technical analysts, the market may be approaching the resistance levels and one must be cautious about near-term stalling.
For gold, the 2007 highs of $688/693 should prove to be formidable, while silver may struggle with 13.40/44 resistance.
In case of bullion, the choppy levels have continued for too long. Analysts assert that there are still higher highs to come; and therefore, recommend strategic buying on dips.
Base metals
It was a strong week across the base metals complex. The main driver was the strong Chinese 2007 economic data (second quarter GDP and first half CPI) and depreciation of the dollar against most major currencies.
Fund buying lifted prices in what is usually the seasonally slow summer period for the complex.
There was a 2.8 per cent rise in the LME copper price during the week; but the premium of the LME copper price over the Shanghai price has declined somewhat because restrictions imposed by China Exchange stocks are seen rising.
Ongoing strikes and potential supply disruptions continue to haunt the market. According to chartists, price action last week has closed through the copper’s resistance level of $8,040. With the medium-term hurdle giving way, the path is clear for a further move up.
Copper’s path clear
Lead was the star performer, surging by nearly 15 per cent over the past week in the wake of short-covering, after a 6.4 per cent rise over the previous week. Prices set yet another record high at $3,340 a tonne.
Tin prices rose to their highest in 25 years at $15,700/t, while zinc gained too. Nickel too had a rally late last week, but it was partly technically-based and in line with growth in other base metals prices.
However, the outlook for nickel is bearish over the next 2-3 months. The market could be in surplus and is seen impacted by slowdown in the stainless steel industry.
Crude oil
The strong uptrend in crude oil prices (both Brent and WTI) witnessed last week is expected to continue.
The move up at the front end of the crude oil price curve saw it become steep as values further than two years out and beyond continue to soften. Since its peak a week ago, the 5-year forward NYMEX crude oil contract (August 2012) fell around $1.40 to $ 71.60, while the front month contract moved up by $2 a barrel.
The combination of strong US gasoline demand and low inventory levels means that gasoline markets are at the risk of further tightness later in the season, according to experts.
Analysts recommend buying at dips in gold.
Outlook bearish for nickel over next 2-3 months.
Silver may struggle with 13.40/44 resistance.
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