Commodity Research and Analysis

Precious metals prices climbed higher on healthy investment demand due to rising inflation. The recent recovery in dollar and slight cooling off in crude oil prices, however, trimmed the gains. The prices are currently being driven by investment demand as activity in the physical markets is sluggish. Further, with equities showing weakness globally, investors are parking their funds in commodities. The currency markets are also showing indecision, with the dollar showing some recovery in the absence of any signals from the ECB to hike interest rates beyond the recent hike of 25 basis points to 4.25 per cent. Soaring crude oil prices over ongoing tensions in Middle East is keeping investment demand for the precious metals strong. The crude oil prices peaked at $145.85 a barrel recently raising inflation worries. The prices have eased a bit since then on concerns over possible demand compression, but can still hurt global economic growth. Rising geopolitical tensions over Iran’s nuclear issue is also proving supportive for gold. In such a scenario, any correction will be short-lived. Physical demand is expected to see some recovery with the start of festive season in August in India. Another positive is lower central bank sales this year under CBGA, with the ECB selling only 72 tonnes of gold so far. So, in the medium term, global economic slowdown and weakness in dollar is likely to keep the precious metals shining. According to Abare, spot gold is expected to average $892 an ounce in 2008, 28 per cent higher from $697 in 2007. The prices, however, are expected to fall 4.1 per cent in 2009 to average $855 as recovery in world financial markets and stability in US economy might decrease the attractiveness of the precious metals.

August Gold on the MCX is firming up after a slight correction. Overall firm tone remains intact with prices holding above the downtrend line and the medium–term EMAs. Prices are likely to continue to trend higher with minor dips on the way up. Look to buy on dips when the opportunity arises. MCX Silver for September delivery is also moving in line with gold. The next significant resistance is around the 27000 levels and ability to break above these levels will reaffirm the bullish tone of the market. The stochastic is slightly weak which will provide dips and buying opportunities for the bulls to reenter the market.