Metals shine on fund buying

Strong fund buying and low inventories on Monday pulled up prices of all metals to new highs; gold, silver and copper led the rally, traders said.

Silver prices in the domestic market surged to an all-time high of Rs 18,445 a kg (ex-Mumbai) in tandem with overseas spot silver shot up to a new 23-year high of $12.49 a troy ounce.

Gold in the domestic spot rose by Rs 80 to Rs 8,710 per 10 gm, in line with the overseas price that increased to $598.29 a troy ounce.

Domestic copper and zinc futures at the MCX rose 1.8 per cent on Monday as the London Metal Exchange (LME) prices touched new highs. Leading the charge at the LME, copper surged to $5,900 a tonne.

However, the domestic demand sentiment dwindled as the prices continued to touch their new highs. "It is likely to remain so till the prices stabilise," said a Mumbai-based base metal trader.

"The buying is still based mainly on the strong fund interest, along with gold, and concerns over the potential of the dollar weakening. The kind of bullishness for metals suggests that the funds might be investing in all metals and not just gold, as a means of diversifying and cushioning the dollar effect. This explains why base metals are being pushed to such an extent above their economic values," William Adams, metals analyst with BaseMetals.com, said.

Si Kannan, senior analyst with Sharekhan Commodities, said, "In case of industrial metals, continued capacity constrains within industries exhibit a long-term supply lags and supplies are likely to lag demand even this year."

"Inventories are at the lowest level, historically, and as stocks-to-usage ratio fell sharply, base metals are on fire. Also, the rising costs of inputs like power, oil and other raw materials will keep prices up," he added.

Market players expect the prices of industrial metals to remain on an uptrend till early 2007.

The prices of industrial and precious metals are also spiralling following geopolitical turmoil in West Asia, US Federal Reserve's admission that the US economy is weakening, fluctuations in the dollar and inflationary concerns.

"Most hedge funds are shifting their investments from currency to metals, which have lately become safe havens. It is better to invest in other metals than gold," said research head of a Mumbai-based brokerage.

Silver prices remain on an upswing, with the US Securities and Exchange Commission paving the way for the launch of a new investment vehicle "" the exchange traded fund.

The strength of the white metal has also proved instrumental in pulling up the prices of the yellow metal.