Gold runs the risk of losing its current lustre

[Italkcash Newsfeed]

Has the madness in commodity markets come to an end? It seems so if you check last week’s performance by various commodities in global markets.

Most of the commodities seem to have bottomed out and they showed a steady performance in the previous week.

This means world markets are becoming more reliable and the volatility is fading away, which is good because the fear among investors will vanish soon.

In many cases, there has been little change in market fundamentals.

Gold has turned out to be an outstanding performer. With equity markets weak, the yellow metal's safe haven status is further confirmed as investor interest continues. Base metals, especially copper, have been vulnerable to short-covering rallies.

Crude, however, has been rising because of a strong fundamental grounding.

Experts assert that the next significant directional change in oil prices is likely to be to the upside.

For agricultural commodities, acreage allocation in the US will be a key factor. It is widely believed corn may either retain or lose some acreage, while wheat and cotton are sure to lose out.

Investor interest in the yellow metal has been pronounced in recent days. Rather than as a specific currency or inflation hedge, gold has attracted safe haven investment even as investors have little choice in other commodities or stock market.

Inflows into physically backed exchange-traded products have been robust. As prices rise, there will inevitably be some profit-taking which would exert downward pressure on prices.

In the London market, on Friday gold PM fix was $952 an ounce, up from $936.50/oz the previous day. Silver declined to $13.21/oz (AM fix) from $13.48/oz on Thursday.

The current prices have also encouraged mining companies to ramp up production where possible. Rising gold prices create the risk of demand destruction in price conscious markets such as India. Gold imports into India have fallen significantly and if prices stay high, imports may grind to a halt. There was no import of gold in India in February.

Also, if investor interest eases and stock markets begin to once again attract investor attention, gold runs the risk of losing its current lustre.

According to technical analysts, gold runs the risk of a correction in the short-term.

It can potentially move down to the support level of 882 and to 774 in the worst case. Once the correction completes, there is the possibility of resumption of the larger bull trend for 1,000 and beyond.

In the metals sector, copper is one commodity that is beginning to attract attention. The metal has the potential for a slight firming in fundamentals over the next few weeks. Combined with very large short positions it suggests that there is an upside price risk. Copper could test $3,900 a tonne on a modest improvement in fundamentals with Chinese buying.

Zinc too seems to have an upside. It could test $1,250 a tonne from the current levels because of the possible pick up of Chinese arbitrage trade in the next few weeks. Nickel may remain range-bound, while aluminium may have some short-term strength.

[Jimster09]

Here is another view - I don't necessary beleive in it though
Peter Munk on a near-term possibility –“Let’s say a small percentage of the world’s central banks – or simply the United Arab Emirates, by itself – do not believe President Obama’s pledge that he will halve the US deficit by the end of his first term. They shift some of their dollar reserves into gold. It would not take many decisions of this kind to push the price above $2,000 per ounce.”

Disclosure: Peter is chairman of Barrick Gold

[staffjam]

I know quite a few people who are very bullish on gold. Their main argument has been as a hedge on the dollar.
I'm normally a bit of a contrarian and all of these ads in the papers screaming about the incredible value of gold has me a little worried - but the gold bull still feels like it might have some steam left.

[GLD2010]

Money supply increase = price of gold increase. Look at the ridiculous interest rates across the globe right now. Commodities as a whole look good. Gold should be the bedrock of any investment portfolio.

[raghu]

hi, could you provide your email id so that can mail you?.
cheers
raghu