Silver is likely to outperform gold in 2007; zinc prices expected to soften.
Silver is likely to outperform gold in 2007; zinc prices expected to soften
The year 2006 was a good year for metals, both base and precious. The prices of Aluminium rose from Rs 101 to Rs 126 between January 1, 2006, through December 30, 2006.
Copper rose from Rs 203 to Rs 285 in the same period. Lead rallied from Rs 52 to Rs 74 and Zinc moved from Rs 118 to Rs 191. Precious metals had a good year, too. Consider the appreciation from Rs 7,638 to the Rs 9,234 mark in gold and silver. Without doubt, the bulls had a profitable year in 2006. What is in store for 2007 ? Will it be as good? Let’s take a careful look.
Aluminium: This metal has been holding on its own even as copper and steel have seen softening of price trends. China and India continue to remain voracious consumers of this metal and, therefore, the erosion in prices on this commodity may not be significant.
For bulls, this metal may actually be a relatively safer haven as the downsides are likely to be capped as compared to copper and zinc. A clear bullish mandate for the bulls will take place only after the 130 levels are overcome and that, too, on higher volumes and a spurt in open interest. Should these conditions not be fulfilled, a repeat of the fiasco on this counter like in May 2006 may occur.
Copper: This commodity is clearly under pressure. While year-on-year numbers are showing net gains, the commodity is clearly on the decline as the all time-high of 398 is a far cry from the current levels. Should the buffer stocks continue to rise on the LME and the data from the US automobile and housing industries continue to remain pessimistic, I expect copper to test the 260 - 265 band in 2007.
Zinc: Economists were divided on the outlook for zinc a few weeks ago, but data emanating from the consumption patterns seem to suggest a softening of prices on this commodity, too, albeit less than copper. The demand-supply equation of zinc is a lot more inelastic in relative terms compared to other metals and, therefore, price volatility is also lower.
The trends will depend on how the consumption stacks up in the coming year.
If the US economy has indeed a soft landing as is widely expected, the prices are likely to remain under pressure and the all-time highs are likely to be a formidable hurdle on the upsides.
Gold: What appears apparent on the long-term charts is the fact that the 8,400 level is now a very significant support for 2007.
The price will be influenced by crude prices, inflation, dollar movement and the housing data along with the deficit numbers. The year 2007 is also likely to see the “terror premium” to remain in the prices of bullion. The softening of the dollar is likely to keep downsides limited on gold. The coming year is likely to see the bulls having an upper hand over the bears, though a major run upwards may also be unreasonable to expect.
Silver: Silver is likely to outperform gold in 2007. The white metal is industrial and hedge favourite and, therefore, has a relatively higher cushion on declines. The 16,600 - 17,000 band is now a clear support area that is likely to hold strongly in the coming year.
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