After a prolonged spell of trading at $1100’s, gold prices have surged to near December highs? Do you expect the bullish trend to continue and for how long? What factors are supportive of a gold rally? Factors supportive of Gold : -The growing worries about the debt crisis in Greece, which saw its credit rating downgraded to junk status has increased uncertainty which in turn is supporting gold. Additional downgrades of the credit ratings of Portugal and Spain have also weakened investor sentiment. -The fear that the EU's $1 trillion package may not be enough has caused a strong bid in gold. Despite the rescue package for euro zone states, investors still doubt fiscally weaker nations can improve their finances, or do so without stunting overall growth in the region. -Gold is serving as a currency alternative for many investors—a place to hold their wealth. -The increased volatility in fiat currencies has led several central banks to diversify part of their foreign currency reserves into gold in the recent past. These central banks include those of India, Sri Lanka, Malaysia and Russia. -The increased flight to safety has led to an increase in the demand for investment in gold ETFs: The SPDR Gold holdings were at a record high at 1217.11 MT. The fund's reserves have risen 68.5 tonnes or 6 percent in the last four weeks. The SPDR ETF is the world's sixth largest holder of gold, ahead of Switzerland, China and Japan. -Euro touched a 4-year low at 1.2234 on 17th May 2010. Gold usually trades in step with the euro and counter to the dollar as it is seen as an alternative asset to the U.S. currency. However, the metal has recently been bought as a safe haven asset and hedge against currency volatility. View : Gold might undergo a short-term technical correction till $1175 (Rs.17600 on MCX) in the short-term. However, the longer term picture still looks positive and a rally to fresh all-time highs near $1300 (above Rs.19,000 level on MCX) is possible. Silver prices are also tracking gold and had a roller-coaster ride in MCX too? What is your near to short term outlook for silver prices? Silver prices are influenced by changes in prices of both gold and base metals. While gold is treated as a safe-haven bet, base metals are considered to be riskier assets. Hence, the price of gold is currently moving higher while base metals are experiencing a correction after a prolonged rally in 2009 and the beginning of 2010. This aspect has led to choppiness in silver prices in the near term. In our view silver will continue to rise, however, it could slightly under perform gold as long as base metal prices are under pressure. Silver has good support near $17 level (Rs.27500 on MCX) and a rally above $20.50 (above Rs.31,000 on MCX) could be expected. Recently, Gold ETFs have attracted major investments in India surpassing even equity funds? What factors have supported this trend and how far has Euro Zone debt crisis helped support this phenomenon? Euro Zone debt crisis is one of the major factors which have supported gold in recent times. The crisis has eroded investor confidence in government debt of some of the euro zone countries having fiscal problems. This has led to increased investment demand for safe assets like the US dollar, the Japanese Yen and gold. In India on 16th May 2010, on the occasion of Akshaya Tritiya, the total turnover for gold ETFs at NSE was Rs 172 crore, while the turnover at the BSE was approximately Rs 25 crore. According to the latest data from the Association of Mutual Funds in India (Amfi) total asset under management of Gold ETF is over Rs 1,700 crore in April 2010 compared to Rs 700 crore in April, 2009. In April this year, Gold ETFs saw inflows of approximately Rs 50 crore. Commodity companies have reported better performance in terms of profit growth and cost reduction exercises than non-commodity companies? Do you think higher commodity prices have enabled them to post better returns and if commodity prices flatten out, India Inc’s performance could take a beating? A rally in industrial commodities like copper, zinc, lead, aluminum and even crude oil in the past year has certainly contributed to the improved performance of companies involved in producing/exploring these commodities. Use of hedging mechanism at commodity futures exchanges has also helped these companies to manage cash flows and cost of production in a better way and improve their profit margins. A fall in commodity prices could impact earnings of those companies which have not been using commodity futures to hedge themselves against volatility in commodity prices. In recent days, industrial metals have become volatile –have slumped in global markets possibly due to Euro Zone crisis and demand concerns but recovered slightly. What is your brief take on major base metals in the short to medium term- for copper, nickel, zinc, lead, aluminum? The Euro Zone crisis has reduced investment demand of industrial metals as investor’s fear that the current crisis might spread to other countries in the region, thereby impacting growth in the area. This might adversely impact the physical demand for base metals in the near future pushing the prices lowers. Copper has already fallen by more than 16% from recent highs, nickel has declined by 23% while zinc and lead have fallen by 25%. View: In the short term base metals remain under pressure as the market factors in a slump in demand due to the ongoing crisis. We further expect 5-10% downside in all base metals. However, in the longer term, the global demand from emerging economies like China and India along with demand recovery in the US, where we are witnessing a gradual rebound in the manufacturing and housing sectors, could support prices. In the months ahead what will be the critical factors for growth of Indian commodities sector, especially gold and base metals- monsoon, China demand concerns on monetary tightening, auto sector growth, Euro Zone crisis, performance of India Inc and Sensex? -A good monsoon augurs well for the growth of the physical commodities sector in India since the country is still predominantly an agrarian economy. A lackluster monsoon impacts production of agri commodities which in turn leads to reduced earnings for the farmer. This also has an adverse impact on gold prices as could be gauged from the reduced gold imports in 2009 when the country experienced severe drought-like conditions in several areas. -China has been trying to curb excessive speculation in its overheated property market by using several monetary policy tools which has also contributed to the recent correction in base metal prices along with the euro zone crisis. -Commodities like lead and platinum are used in the auto sector and hence the growth in this sector certainly impacts the prices of these commodities. -The performance of India Inc. in recent years has been very consistent which has been reflected in the Indian equity markets. A good performance by Indian companies contributes to the GDP growth which in turn supports demand for commodities in general. Hence it is a very significant to the growth of the Indian commodities sector.

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