Gold, crude prices may ease, oil puzzle on

In the volatile and somewhat crazy business of commodities trading, what you see is not what you always get. Technical analysts now say that gold and crude oil prices may now slip after a heady run to new highs in 2008. But what is seen is only a “correction” – not a plunge. Experts are also puzzled why demand for oil remains high while talk of an economic slump in the US should dampen demand.

Technical analysts are people who study historical market patterns through charts that show waves of buying and selling corresponding to volumes and prices and use them to predict behaviour collectively influenced by buyers, sellers, speculators and investors.

Gold prices in the US were a tad away from $1,000 per troy ounce (approximately Rs 12,866 per 10 grams) on Friday, a level already breached in the futures market. The prices of the premium West Texas Intermediate crude for April delivery also eased to $109.85 per barrel.

“These commodities are due for a correction. From a technical analyst’s point of view, they look overbought. While a recession in the US could put an end to rising crude oil prices, gold prices may not decline lower than $985 per troy ounce (approximately Rs 12,668 per 10 gram) as fundamentals support the increase in prices," said T. Gnanasekar, director of Mumbai-based Commtrendz Research.

While crude prices have gained more than 26 per cent in almost a month from $87.50 a barrel as on February 06 to $109.85 a barrel on Friday, gold prices have gained more than 12 per cent during the same period.

While the rise in gold prices is justifiable as investors buy the yellow metal to mitigate the risks of a weakening dollar at a time when the world's largest economy is slipping into recession, boiling crude prices seem to lack fundamental factors, as slower global economic growth hits demand for fuel, thus potentially pulling down crude prices.

Experts are worried that higher crude prices in a slowing global economy lead to stagflation – a period of high inflation (higher commodity prices) coupled with stagnating growth (increase in unemployment and slowdown in production).