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G. Chandrashekhar

MUMBAI, March 13

ALTHOUGH gold prices currently are firm primarily on war concerns, far from enjoying just a `war' premium, the market for the yellow metal is driven by a host of other factors that are expected keep prices high.

In a soon-to-be-released Commodities Forecaster report of Macquarie Research Equities, Mr Kamal Naqvi, analyst, argues that regardless of a potential war, other factors remain notably supportive to gold.

These include concerns over absolute and relative currency valuations (particularly the dollar); the lacklustre global economy; the remaining potential for terrorism; and wider geopolitical tensions (example, North Korea). In addition, gold producers continue to highlight their intention to continue to reduce their hedge books.

Quite aside from a temporary war driven spike in prices, there were reasons to expect high gold prices in the range of $330-380 an ounce to hold for some months to come, as the plight of the US economy and equity markets continued to weigh on the dollar, the analyst remarked.

"However, our base case is that signs of economic growth towards the end of the year, plus growing debate about European central bank gold sales from September 2004, will see prices test support at $ 330/oz and probably lower heading into 2004,'' Mr Naqvi forecast.

It has been a remarkable start to 2003 for gold, with prices surging to a peak of $ 388.50/oz in early February, a level not seen since August 1996. A steadier tone in equity and currency markets and signs of a delay in military action prompted liquidation of long positions and prices fell back to $340-350/oz.

The profit taking was never likely to continue for long, given US and UK intentions favouring military action against Iraq, with many believing such action could begin during March.

"However, gold, perhaps more than any other asset at present, has become remarkably susceptible to the changes in market sentiment in relation to the potential timing of a war,'' Mr Naqvi observed.

For 2003, total physical supply of gold will be 3,800 tonnes (down 1.8 per cent from last year), while total demand is estimated at 3,402 tonnes (marginally down -0.4 per cent) disclosing an implied physical balance of 398 tonnes. Gold prices will average $340/oz during 2003, according to Macquarie forecast.

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