re: dow why is it bad to fall, page-17

re: metals commentary Metals take a beating, but some still see life
Mon May 22, 2006 4:54am ET
Email This Article | Print This Article | Reprints [-] Text [+] By James Regan - ANALYSIS

SYDNEY (Reuters) - World metal markets may be smarting after some dramatic losses but not everyone is ready to call an end to the heady buying that earlier swept bullion to a 26-year high of around $730 an ounce and copper to a record $8,800 a tonne this month.

Hedge funds active in gold trading have used a recent rebound in the U.S. dollar and weaker oil prices to take profits, locking in gains of more than $150 an ounce since mid-March, according to David Thurtell, a strategist for Commonwealth Bank of Australia.

Gold has recoiled more than 10 percent since mid-May, while copper and zinc are down about 17 percent.


"Fund profit-taking at last seems to be gaining momentum and this has the potential to see prices fall significantly further," analyst William Adams of BaseMetals.com said in a report.

But some analysts believe the recent correction -- including a near 7 percent decline in copper on Friday -- is healthy and unlikely lead to a price collapse because of real demand for a variety of commodities.

"Most likely markets are returning to rational exuberance, with robust global growth, particularly in the Asian region, to underpin commodity prices over the next few years and possibly beyond," said National Australia Bank analyst Robert Henderson.

Spot gold currently sells for $640 an ounce , which is $223 higher than a year ago and copper costs $7,255 a tonne , a one-year gain of around $4,000.

Zinc, aluminum and lead prices are also substantially higher than a year ago. Continued...