Profit taking drives down commoditiy prices; fundamentals sound - Trilinear Asset Management

In an interview on ClassicFM @ 18:55 on 27 June 2007

[miningmx.com] -- CHINESE and Indian demand for commodities is unlikely to tap off any time soon, which will support metal prices, and gold could bounce back to the $670/oz level, Tri-Linear Asset Management resources analyst Jason Chesters said.

“I don’t think one needs to get overly nervous about the levels of commodities (prices) because I don’t think that we’re going to see much of a tapering off of demand from places like China and India in the emerging world for base metals and gold specifically,” said Chesters.

“We are testing the $640 but I’m fairly optimistic that we’ll get a gold price back towards the $700 in the not too distant future.”

The resources index was 2.3% down on June 27 with commodities falling back fairly dramatically.

Gold has been testing $640 an ounce and platinum has come down between $20 and $30 in the last few days.

Speaking on Classic Business Day, a week-nightly radio show, Chesters said the market was seeing general profit taking in the pull back that marked the first three days of the week.

"We’ve seen the market fairly soft in the last couple of days, and as people see the market sliding further and further I think nervousness builds in, and there’s a reaction. What we are seeing here, I think, is a reaction to the market slipping away - people are now taking profits where they had built up fairly significant profits over the last year,” said Chesters.

“I think the reason we are seeing that - and therefore the knock-on to other commodities is because we’ve seen a fairly good run in commodities over the last couple of years to levels where people do get nervous.”

Liquidity and interest from private equity companies was the reason the stock market had run for so long.

“I don’t think for a second it would have been to the same extent if it hadn’t been for that liquidity, and also the interest from private equity companies. What we are now seeing is a higher inflation environment, and as interest rates come up the cost of capital is obviously increasing - and that starts to then detract from that liquidity of savings for investment into risky asset classes,” said Chesters.