energy

MCX Crude oil Feb rose to high of Rs. 3608 per barrel and traded with reasonable gains following trend from Gold and equity market. MCX Natural gas was trading with loss of Rs.3 at Rs. 311.50

· Crude oil rose for a fourth day on speculation the U.S. Federal Reserve will cut interest rates to spur economic growth in the world's largest energy user and as OPEC prepares to keep output on hold.

· The threat of tumbling stock and home values and a weakening labor market will spur the Fed to cut its benchmark rate by half a percentage point tomorrow, traders and economists forecast. The Organization of Petroleum Exporting Countries is unlikely to change its output when it meets Feb. 1 in Vienna

· Some OPEC members, including Iran's Governor Hossein Kazempour Ardebili, have said the group is unlikely to raise output because there are sufficient supplies in the market and signs of a global economic slowdown mean demand may fall.

· U.S. economic growth probably slowed to 1.2 percent in the fourth quarter as high fuel costs and rising unemployment limited consumer spending, according to a survey of economists. Asian stocks fell for the first time in four days after Goldman Sachs Group Inc. said the Japanese economy has probably fallen into a recession.

· While temperatures are expected to be warm earlier this week, forecasts released Friday called for colder weather during the 6-to 10-day period in the U.S. Northeast and Midwest which could give a boost to heating demand. According to forecast by AccuWeather.com, as reported by Dow Jones newswires, temperatures are expected to drop into the single digits in New York this weekend and remain in the teens and 20s Fahrenheit during the first week of February.

MCX Crude Oil Feb (Daily Chart)



Technical Outlook:

Momentum studies are bearish but are now at oversold levels and will tend to support reversal action if it occurs. The daily stochastics have crossed over down which is a bearish indication. The stochastics indicators are decreasing from overbought level, which is bearish and should support lower prices. The market's short-term trend is negative as the close remains below the 9-day moving average. The upside closing price reversal on the daily chart is somewhat positive.

Recommendations:

MCX Crude Oil Feb: Buy at 3560-3570 for the target of 3660 and 3695 with stop loss at 3520



MCX Natural gas Feb (Daily Chart)



Technical Outlook:

Momentum studies are still bullish but are now at overbought levels and will tend to support reversal action if it occurs. The daily stochastics have crossed over up which is a bullish indication. The stochastics indicators are rising from oversold level, which is bullish and should support higher prices. The market's short-term trend is positive as the close remains above the 9-day moving average. The downside closing price reversal on the daily chart is somewhat negative.

Recommendations:

MCX Natural Gas Feb:

sell @ 313/314 stoploss 318 tgt-310-307-304

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Bullion

Gold rose to record highs in London, Comex and MCX as power cuts continued in South Africa, affecting the mine production in the world's second-biggest miner of the metal. Silver jumped to the highest since 1980.

· MCX Gold April traded towards the high of Rs. 11861 per 10 grams gave a small intra day correction towards days low of Rs. 11721 per 10 grams, but finally closed with gains. Similarly MCX Silver March registered days high at Rs. 21599 per kg and corrected towards days low of Rs. 21254 closed with gains.

· International spot gold traded positive to register day’s high at $933.10 per toz and silver at $16.82 per toz.

· Anglo Platinum Ltd. and Gold Fields Ltd. shut operations in South Africa for a fifth day because of a shortfall in power supply. The country produces more than a 10th of the world's gold and over three-quarters of its platinum. Gold also climbed on speculation the Federal Reserve will cut interest rates tomorrow, pushing the dollar lower and boosting gold's appeal as an alternative to U.S. assets.

· Interest-rate futures indicate a 74 percent chance the Fed will reduce its benchmark interest rate to 3 percent, compared with 86 percent yesterday, after a report showed orders for durable goods rose last month. The Fed last week cut the rate to 3.5 percent in an emergency move to head off a recession.

· Gold production inIndia in the first nine months of this financial year totalled 9.369 tons, up from 9.058 tons from a year earlier, according to the latest government data.

· Apparent long liquidation pared the fund's net long position in Comex gold futures and options combined as of Tuesday, according to the latest CFTC data. The large non-commercial accounts were net long 217,961, down from 224,528 the prior period.

Indian Bullion Spot Market

Precious metals received a lift in spot markets on upbeat equity markets, supply disruptions at South African mines due to power failure as well as expectations of yet another interest rate cut by the Federal Reserve.

· In Mumbai markets, gold (995) and gold (999) advanced by Rs135 to finish at Rs11,845/10gm and Rs.11,895/10g. Arrivals in gold were at 150 kilos. Silver (.999) closed at Rs.20,880/kg, rising by Rs.200. Arrivals were in silver were at 50 kilos.

· Chennai gold (995) escalated by Rs175 to finish at Rs11,875/10gm and gold (999) by Rs125 to close at Rs11,925/10gm respectively whereas Silver (.999) closed at Rs20,750/kg, rising by Rs300.

· Jaipur gold standard closed at Rs.12,000/10gm, advancing by Rs.200 whereas Silver (.999) closed at Rs21,000/kg, rising by Rs100.

· Ahmedabad gold (995) rose by Rs150 to close at Rs.11,850/10gm and gold (999) by Rs150 to close at Rs11,900/10gm whereas Silver (.999) escalated by Rs250 to close at Rs21,150/kg.

· In Delhi bullion markets, gold (995) increased by Rs80 to close at Rs.11,830/10gm and gold (999) by Rs90 to close at Rs.11,890/10gm whereas Silver (.999) zoomed up by Rs210 to end at Rs.20,750/kg.

MCX Gold Apr (Daily Chart)



Technical Outlook:

Momentum studies are bullish now and will tend to support reversal action if it occurs. The daily stochastics have crossed over up which is a bullish indication. The stochastics indicators are rising from oversold level, which is bullish and should support higher prices. The market's short-term trend is positive as the close remains above the 9-day moving average. The downside closing price reversal on the daily chart is somewhat negative.

Recommendations:

MCX Gold April: Buy only above 11760-750 for the target of 11890 and 11940 with stop loss at 11715

MCX Silver Mar (Daily Chart)



Technical Outlook:

Momentum studies are still bullish now and will tend to support reversal action if it occurs. The daily stochastics have crossed over up which is a bullish indication. The stochastics indicators are rising from oversold level, which is bullish and should support higher prices. The market's short-term trend is positive as the close remains above the 9-day moving average. The downside closing price reversal on the daily chart is somewhat negative.

Recommendations:

MCX Silver March: Buy at 21380-400 for the target of 21560 and 21670 with stop loss at 21180


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bullion chart

this is MCX gold day chart
click the chart to view large



this is MCX silver day chart
click the chart to view large



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GENERAL MARKET CONDITIONS

The IMF has reduced its global growth target for 2008 to 4.1% from 4.9% yesterday. The IMF has lowered China’s 2008 growth forecast to 10% from previously 11.40%. China is the biggest guzzler of base metals. The current base metals prices to a certain extent reflect slowdown in global growth. However if actual results come in lower than expected then expect another phase of hammering by the bears in base metals. Lower global growth in 2008 accompanied by higher prices of essential commodities implies greater investment interest in precious metals and soft commodities and less investment in equities. Gold will continue to rise with very high volatility.

Copper and other base metals shot up on expectations that Fed interest rate cuts will prevent the US economy from slowing down. Base metals have risen partly due to short covering and some long position building ahead of the Fed cut. Expect more gains in base metals today.

Traders prefer to go long in gold, silver and crude oil while they are going short on the US dollar before the Fed meeting. Apart from the 0.25%/0.50% interest rate cut, traders have started betting in the options markets on what will be the Fed funds rate towards the close of the year whether it will be 2.25% or 1.25%. After this week most of the interest rate sensitive risk will be over. It will be another volatile day, but gold and silver will find support at lower levels.

COPPER -- MARCH FUTURE -- INTRA DAY PIVOT: $327.0

Only a break of $338 will result in $347 and $360 in the short term. Initial support at $328.60

NYMEX CRUDE OIL -- FUTURE -- INTRA DAY PIVOT: $89.24

A break of $93.20 will result in $95 and more. On the lower side as long as $90.20 holds downside will be limited.

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Gold could hit $975/oz, silver $17.90/oz:

Gold prices are forecast to hit a peak of $975/oz in 2008 on positive fundamentals, less central bank selling and stagnating production, according to precious metals and technology group Heraeus, in its Precious Metals - Outlook 2008. Silver prices could climb as high as $17.90/oz in the first half of the year as demand from many industrial applications and investors grows, the report added.

"Investors will most likely continue to diversify their portfolios, and gold will clearly play a role here as an alternate asset-class," Heraeus said, adding that if only the Germans were to allocate 5% of their Eur4.7 trillion ($6.8 trillion) near-cash assets to gold, they would be buying up an equivalent of six years' annual production.

The report forecast bullion to reach a high of $935/oz in the first quarter of 2008 and a year's high of $975/oz, but it predicted gold's peak in 2009 would be only $815/oz. This compares to a high of $848/oz in 2007. Looking at the lows, Heraeus predicts a low of $840/oz in the first quarter of this year, a low of $740/oz in the whole of 2008 and a low of $650/oz in 2009. The low in 2007 was $601/oz, according Heraeus.

Heraeus warned that the "party" could not go on forever and already the second half of 2008 could see things "calming down on gold's front should a recession in the USA firmly set in and as a result the price of oil comes off substantially." It also could not be ruled out that mining companies at some stage might decide on fresh hedging, the report said. "All this could have the gold price dropping down to under $700/oz by 2009," Heraeus said.

Forward contracts as a hedge strategy for industrial end users, at present price levels, cannot be really recommended, Heraeus said. Instead industrial end users should, even in this tendencially upward trend, wait for a pullback, which should then provide a much better buying opportunity, the company added.

"What makes hedging currently additionally unattractive is a relatively high interest-driven premium (contango) in the forward purchase price," Heraeus explained. "Though this would please mining companies (if they find the courage to sell forward), it is an added burden to the industrial buyer." A 2.5-year forward gold purchase, for example, would today cost about $90/oz over the spot price, leading to a final price relatively close to $1,000/oz, Heraeus said.

Silver could reach Q1 high of $16.75/oz

Silver is forecast to rally to $16.75/oz during the first quarter of 2008 before reaching the year's high of $17.90/oz, then decline to a peak of $15/oz in 2009. This compares with a high of $16.21/oz in 2007.

Looking at the lows, Heraeus predicts a low of $14.75/oz in the first quarter of this year, a low of $13.50/oz in the whole of 2008 and silver falling to $11.00/oz in 2009. The low in 2007 was $11.06/oz, according Heraeus.

Heraeus warns that demand from the photographic industry is expected to decline further in 2008 and 2009 and that new production would offer a growing supply of silver available in the market. Silver supply is forecast to grow at 3%/year as a result of higher byproduct output from increased base metals production, the report said.

In addition to the 25% produced by the primary mines, silver is a byproduct, among others, of gold, copper and lead production. Currently annual new silver production is around 20,500 mt, and a further 7,800 mt comes from silver scrap and official reserves, Heraeus said.

On the demand side, silver has enjoyed growth in new applications. "Relatively new applications for silver, though with comparatively low demand volume, but with enormous growth-potential, were in the plasma-screen segment, solar industry, RFID-sector and water-purification processes. All four areas promise an increasing demand for silver in future," Heraeus suggested. The high price of silver has cut back demand for silver from the jewelry and silverware markets, it said, adding: "In 2008 we expect a further decline of around 5% within this segment."

Heraeus said in its report that in view of a longer-term restrained scenario it would not recommend entering into silver price hedging at the current levels. "In comparison to that staggered forward purchases, starting at the $15/oz level, appear to be a more promising strategy," it noted.

Silver's high volatility makes it feasible to consider selling put options, it added. "Though this way the industrial end user does not get any protection against fast rising prices, he can get however a decent price-subvention on his running demand through the premium intake," Heraeus noted.

SOURCE;http://www.platts.com/Metals/highlights/2008/mp_mw_012908.xml

outlook

METALS: April gold futures closed down $2.00 at $930.80
today. Prices closed near mid-range after hitting another
fresh contract and all-time high today. Profit taking was
featured and the bulls are still technically very strong
amid no strong clues that a market top is close at hand.
Bulls' next upside price objective is to produce a close
above major psychological resistance at $1,000.00.

March silver futures closed up 5.0 cents at $16.80 an ounce
today. Prices closed nearer the session high today and hit
a fresh contract high and a fresh 28-year high. Silver
bulls have the solid near-term technical advantage.

March N.Y. copper closed up 1,095 points at 329.90 cents
today. Prices closed nearer the session high on more short
covering. However, U.S. economic recession worries will
limit the upside in copper. Bulls' next upside objective is
closing prices above solid technical resistance at the
January high of 337.85 cents.

ENERGIES: March crude oil closed up $0.65 at $91.64 a
barrel today. Prices closed near the session high again
today. Bulls are regaining fresh upside technical momentum.
The next downside price objective for the bears is
producing a close below solid technical support at $89.00 a
barrel.

March natural gas closed down 9.7 cents at $7.945 today.
Prices closed near mid-range today and did score a bearish
"outside day" down on the daily bar chart. Bears have the
near-term technical advantage. The next upside price
objective for the bulls is closing prices above solid
technical resistance at $8.20.

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