July 31, 2006	Monday	Rajab 4, 1427

Gold

GOLD prices have fallen in recent days, pressured by a stronger dollar and the retreat in oil prices. In the London market, gold fell 2.7 per cent to a three-week low on July 24 as a rise in the dollar and easing oil prices prompted some investors to sell their positions. But the decline was expected to attract physical buyers and bargain hunters, who could support the market, dealers said.

Gold fell as low as $603.10 an ounce, its lowest since June 30. The dollar gained broadly, thanks to a smattering of overnight buying against the euro, which failed to break through some key technical levels. “Overall, we expect trading to remain nervous and volatile as markets lack a clear sense of direction,” Barclays Capital said. Spot gold climbed to a two-month high on July 17 on safe-haven buying as fighting between Israel and Hezbollah fighters in Lebanon escalated.

The price of gold hit a two month high of $676.53 on July 17 as concerns had soared over escalating violence in the Middle East, before falling back. That was far below a 26 year high of $730.40 set last May. The precious metal benefits from its safe haven status in times of geopolitical instability.

Meanwhile, silver prices slipped, following gold and copper lower. On the London Bullion Market, silver prices declined to $11.01 per ounce on July 21 fixing from $11.63 the previous week.

Copper

IN the London market, copper prices rose on July 24, buoyed by concerns about supply disruptions in Chile and a technical rebound after being knocked down more than 12 per cent a week ago on worries over slowing economic growth. On the London Metal Exchange, copper futures rose $175 or 2.5 per cent to $7,210 a ton, partially recouping some of previous week’s decline.

Thin, summer trading conditions contributed to the wide price swings, analysts said. What is sometimes hard to understand these days is that, a $500 fall for copper, although seemingly large, does not signify the end of the bull- run, Standard Bank said in a daily note.

Prices peaked at an all-time high of $8,800 in May and are still up 66 per cent since the end of last year. Macquarie Investment Bank said the recent sell-off in copper saw reductions in open interest, suggesting long liquidation, possibly by funds reducing risk appetite and securing gains.

Copper prices fell as low as $6,410 in mid-June and have been hit more recently again as fears resurfaced of a slowdown in global economic growth.

But the market was keeping a close eye on developments at Chile’s Escondida, the world’s biggest copper mine Copper was down 12 per cent last week, and it looked oversold so when people came in and saw the situation at Escondida hadn’t improved they covered back, UBS analyst Robin Bhar said. Workers at Escondida were not optimistic about a new contract offer from the company.

Nickel also stabilized after sharp falls last week as critically low stocks fell again on July 24 to 5,488 tons. With cancelled warrants, or stocks earmarked for delivery, at 3,678 tons, just 1,770 tons are available. Global nickel demand runs at around 3,500 tons per day. Nickel prices rose 3.2 per cent to $24,350 a tons and the premium of the cash contract over futures rose to $2,800 a ton.

Oil

BY the end of the third week of July, oil prices rose above $74 a barrel, because of the crisis in the Middle East, but a surprise build up in US fuel stocks limited bullish sentiment. Prices rose to above $74 a barrel.

There was no indication that the violence would engulf oil-producing neighbours or affect exports from Syria or Iran. The conflict helped push US crude prices to a record high of $78.40 a barrel two weeks back.

The market shrugged off comments from Iran, which repeated its determination to produce atomic fuel in defiance of international calls to halt the work. The world’s fourth largest oil exporter said it wanted to resolve the dispute diplomatically and was still reviewing a package of nuclear proposals backed by six nations.

By July 24, oil slipped below $74, due to diplomatic efforts to resolve the conflict on the Middle East, a region that pumps almost a third of the world’s oil.

Oil hit a record $78.40 in New York earlier in July on fears that fighting between Israel and Hezbollah fighters could spread. Prices are still up about 21 per cent this year. Some oil analysts now view the chance of the conflict widening as less likely, making it less of a prop for prices.

The US refinery outages and the possibility that a storm could form this week in the Atlantic Ocean, which would be the second this hurricane season, limited losses.

Oil also dipped on news Iraq had completed repairs to one of two sabotaged oil pipelines that export crude from its northern fields to Turkey and aims to restart the flow this week. The pipelines have been mostly shut due to sabotage since the US-led invasion of Iraq in 2003. Repairs to the second parallel pipeline should be completed in August.

Oil prices, fresh from striking records above $78 per barrel, will remain firm in the third quarter of 2006, the Centre for Global Energy Studies (CEGS) said in a monthly report published. With many Asian refineries undergoing maintenance shutdowns, global demand for oil would rebound and support higher price levels, which have already been boosted by simmering geopolitical tensions in the Middle East, the CGES said.

Rising demand from refiners in the third quarter is expected to keep oil prices strong, with geopolitical and weather-related concerns adding volatility, it added. Crude futures have fallen by around six per cent since striking recent record peaks earlier this month — but remain some 20 per cent higher than at the start of the year.

Buoyant worldwide economic growth — which stands at five per cent, led by China which is expanding at 10.0 per cent — would prevent prices falling much further. In volume terms, the forecast for global oil demand growth stood at 1.3 million barrels per day over 2006 — of which China accounted for 500,000 barrels, the CGES said.

Opec oil output is expected to fall by 200,000 barrels per day in July because of lower production from top world exporter Saudi Arabia and from Venezuela.

But an increase from Iraq and higher-than-expected supply in Iran are offsetting lower Saudi and Venezuelan output, according to Petrologistics. Iran, Opec’s second-largest producer, is expected to pump 4 million bpd in July, about the same as in June, as the country shifts unsold barrels of mainly heavy crude.

The Petrologistics estimate indicates output by the 10 Opec members bound by formal supply limits, all except Iraq, remained below their 28 million bpd target. Iraq is expected to pump 2.3 million bpd in July, up from 2.16 million bpd in June, leaving supply from the quota-bound members at 27.6 million bpd.