GENERAL MARKET CONDITIONS

Greater physical demand in all metals is preventing them from a fall. The US dollar pace of gains has also reduced. This is also further supporting metal prices from a fall. Base metals are getting buoyed on expectations that Chinese demand will increase once the Olympics are over. Base metals manufacturers trying to reduce production so that prices do not fall in the third quarter, when demand picks up due to festivals in different parts of the globe.

CENTRAL BANK GOLD SALES AGREEMNENT

Sales of gold by signatories of the Central Bank Gold Agreement could be the lowest since the pact was signed in 1999, according to the World Gold Council. Around 319 tonnes of gold has been sold so far by the European central banks that signed the agreement, out of a quota of 500 tonnes allowed in each year.

The Swiss Central Bank is the biggest single gold seller this year to date, having disposed of 113.1 tonnes of the precious metal. According to the figures provided by the WGC, the 15 signatories to the accord disposed of 497.2 tonnes of the 500-tonnes allowance during 2004-05,395.8 tonnes the following year and 475.8 tonnes in 2006-07.

Central banks portray a long term picture of things to come, they are not motivated by profit. If central banks are reluctant to sell gold then retail investors should diversify and invest in gold.

LEAD

The world lead market was in a 41,000 metric ton surplus from January to June due largely to strong mine output in Bolivia, the International Lead and Zinc Study Group said. Global refined lead production of 4.273 million tons outstripped consumption of 4.232 million tons. The surplus is larger than the 8,000 tons during the same period the year before, ILZSG data showed. Chinese net exports of refined lead metal totaled 24,000 tons over the first six months of 2008, compared with 141,000 tons for the same period 2007. Mine output also increased, up 10.3% in the first half 2008 compared with the same period in the year before. This was mainly due to higher output in Bolivia, where the San Cristobal mine opened in September last year, and a further sharp increase in Chinese production, ILZSG said.

A 5.4% rise in global refined lead metal output was principally a consequence of increased production in Canada, China, India, Kazakhstan, the Russian Federation, the U.K. and the U.S., ILZSG said.

An increase in world lead demand of 4.6% was driven primarily by further growth in China. Usage in the U.S. increased by 5.9%, but it fell 3.7% in Europe.

Production for June totaled 770,800 tons, up from May's 731,900 tons. Consumption also rose on the month, to 764,200 tons from 713,400 tons in May.

Impact on Lead prices: Fundamentally lead is bullish but LME (3 months) needs to break $2173 to be in bullish zone.

ZINC

The world zinc market was in a 53,000 metric ton surplus in the first half of 2008, the World Bureau of Metal Statistics said. The surplus was slightly higher than the one recorded in the January to May period of this year.

Mine production was 5.77 million tons, or 9.3% higher than the January to June 2007 total. Refined production rose by 147,000 tons to 5.771 million tons with Asian countries, in particular China, contributing an additional 184,000 tons to the world output. The 27-member European Union production fell by 4% and North American Free Trade Association output was slightly lower, WBMS said.

World demand was 116,000 tons higher than in 2007 with the most significant increase recorded in China. Chinese demand was 1.946 million tons which is 34% of the global total, WBMS said. No allowance is made in the consumption calculation for unreported stock changes.

Reported stocks rose by 62,200 tons with almost all of the increase recorded at London Metal Exchange warehouses, WBMS said. LME stocks represented 28% of the global total.

In June, slab zinc production was 1.0216 million tons and consumption was 1.0260 million tons.

Impact on Zinc prices: As long as LME Zinc (3 months) holds $1550 downside will be limited. However as long as zinc does not break $2022 upside will be limited in the short term


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