Gold: Relentless March Towards $800/Oz-Mark Seen

Mumbai: Commodity markets witnessed a fantastic period with robust gains in energy and precious metals over the past week. While crude oil set fresh all-time highs, platinum was not far behind in the feat. Gold, investors' forever favourite, retested 28-year peaks.

Commodity markets witnessed a fantastic period with robust gains in energy and precious metals over the past week. While crude oil set fresh all-time highs, platinum was not far behind in the feat. Gold, investors' forever favourite, retested 28-year peaks. In some way, it was a truly momentous week for the commodities market. The golden week for the global bullion market witnessed all favourable factors in simultaneous operation.

The yellow metal prices registered multi-decade highs amid soaring crude market, geopolitical concerns and falling US dollar. As the US dollar reached fresh lows in the latter part of the week, gold was boosted to $766.20/oz and then on to a fresh multi-decade high of $770/oz.In London cash market, on Friday the PM Fix was $763/oz, marginally down from the previous day's PM Fix of $764.15/oz. On Friday, AM Fix for silver was $13.83/oz, up from previous day's $13.68/oz.

Platinum too surged to record highs ($1,451/oz) last week on report of mine closure and supply tightness. Little is expected to change in the near future as gold is widely seen to be on a relentless march towards the magical $800 an ounce mark.

Bullish Trend

Foreign exchange strategists believe the prospects for USD remain bleak. Further weakness over the next weeks can be expected.

This will prove positive for gold. Although dollar weakness, high oil prices and geopolitics continue to provide solid momentum, the buildup of speculative positions to all-time highs could expose prices to a short-term correction, warn experts.

Following widely anticipated production loss due to partial closure of some mines, platinum is set to move higher. According to technical analysts, another strong bullish weekly candle points to a resumption of the gold uptrend.

There seems to be little bearish evidence. The focus is higher towards $800 later in the year. As for platinum, the medium term target is 1600.

Base Metals

Contrasting with energy and precious metals, price movements in the base metals market were less positive.

The markets have been volatile on the back of rising stocks and concerns over the health of the US economy as also current weakness in physical market.

Lead ended the week lower by 3.9 per cent following a 10,900-tonnes rise in LME stocks to 33,450 tonnes.

Copper too fell during the week by 2.5 per cent due to general fund long liquidation, which coincided with a 10,800-tonnes rise in stocks.

Zinc dropped by 5.7 per cent for the week. Interestingly, cash aluminium prices rose by 2.3 per cent to $2,501/t over the week, while longer-dated aluminium forward prices (26-63 months delivery) fell.

The 63-month forward contract prices fell by 2.7 per cent to $2,413/t. Although the lead market continues to look tight, if recent stock rises were to continue at a fast clip, prices would come under pressure.

As for copper, the focus of analysts is lower. There could be slow drift lower, rather than a sharp descent, they said. Another interesting aspect of the commodities market is the booming prices of raw material for steel. Indian sport iron ore prices are reportedly trading at $175-180/t CIF China, up from $75/t at the start of the year.

Spot coking coal was as high as $200/t f.o.b. (Australia to India), $40/t higher than recent transactions and more than double this year's annual contract level ($98/t f.o.b. and below). Freight costs are moving up.

Crude

To a market already characterised by tightening fundamentals, when you add geopolitical concerns, there is only one direction for prices. Crude prices moved sharply up last week, breaching the psychological $90 a barrel. Gains have extended to the entire length of the forward curve. With little fundamental news coming out, there is palpable market desire to explore the upside, experts assert. The possibility of further gains remains intact. What can bring prices down? A recession the US could have surely led to a price decline; but that seems to be have been averted, at least for the time being. A relaxation of the extremely tight fundamentals can potentially lead to a pullback.

While the demand side is unlikely to relent (crude is integral to fuelling economic growth), some strong action on part of OPEC producers may help. The promised additional output of five lakh barrels a day beginning November 1 is far from adequate to meet demand. More needs to be done.