TORONTO, April 2 /CNW/ - Both gold and silver started 2007 in a positive
manner building on strong gains seen during the fourth quarter of 2006,
according to the Precious Metals Quarterly released today by ScotiaMocatta,
the precious metals division of Scotiabank. However the recovery was quick to
show signs of strain among traditional sectors.
    "The theme is repeated throughout most of the traditional physical
markets around the world, with positive sentiment at the beginning of the year
replaced by rejection of higher prices and aversion to resultant price
volatility," says Bernard Hunter, Director, ScotiaMocatta.

    Western Jewellery markets continue to struggle

    After a positive start to 2007, negative sentiment seems to have returned
to the Italian jewellery market. January's trend setting Vicenza Jewellery
Fair was considered a success, and many Italian manufacturers expressed
optimism about the prospects for recovery after years of structural problems.
The fair was well attended and confirmed the return to fashion of yellow gold
items. There were also a number of partnerships formed between fashion houses
and jewellery manufacturers, but despite the apparent success of the event
this year it appears that a number of orders have yet to be confirmed, and
further declines in jewellery production have been reported during January and
February.
    In France the market is also experiencing a decline in the volume of gold
consumed in response to higher prices, while production of jewellery continues
to migrate to Asia where labour costs remain more competitive.

    India launches its first gold ETF

    The first gold Exchange Traded Fund (ETF) in India was listed on the
National Stock Exchange (NSE) on March 19, 2007 and currently holds around one
ton of gold. A second ETF, intending to list on the NSE in the first week of
April, has reportedly collected about two billion rupees in investment funds
to date, sufficient to purchase two tons of gold at the current market price.
    "The combined total of three tons is considered disappointing, especially
considering India's dominance in the consumption of physical metal each year,
and points to the ongoing importance of more traditional vehicles for purchase
and sale in that country," says Mr. Hunter.
    Overall demand in India for the 3-month period between October and
December 2006 was more than double that of the same period in 2005, and this
continued into January 2007 with demand for jewellery and medallions/bars at
satisfactory levels. Higher prices throughout February have seen lower levels
of consumption in recent weeks; however robust demand is still expected below
US$650.00 per ounce.

    Outlook for the precious metals market

    Market prospects for gold and silver are mixed for the next three months
although bias remains in favour of a continuation of the long-term uptrend.
    "The market has been generally quiet during March but this is expected to
change as the second wedding season in India picks up and merchants there
build up inventories," says Mr. Hunter. "Likewise there is expected to be
better demand from the Gulf Cooperation Countries (GCC), and particularly from
the Dubai Jewellery market, from April to June."

    ScotiaMocatta Client Sentiment Survey:

    Looking past the inherent volatility of the market, respondents in this
quarter's survey are forecasting a continuation of modest price increases for
gold, and some consolidation of recent gains in silver over the next 3-months.
The twelve-month forecast for gold has been largely static over recent
surveys, and this period's forecast continues that theme, perhaps allowing for
the three-month market to catch up. Both short and long term forecasts for
silver show signs of peaking, with respondents calling for lower prices in
each period compared to December's forecast levels. Respondents forecast an
average three-month and 12-month gold price target (respectively), of
US$672.59 per ounce and US$693.36 per ounce, and a three-month and 12-month
silver price target of US$13.84 per ounce and US$14.28 per ounce
    For the current survey, three-month forecasts for gold and silver range
from US$575.00 - US$759.00 and US$10.00 - US$16.30 respectively, while
12-month gold and silver forecasts range from US$500.00 - US$875.00, and
US$9.50 - US$20.00. It is worth noting that the 12-month forecast highs for
gold and silver are at 25 per cent and 40 per cent premiums (respectively) to
the implied forward curves, which is markedly lower than previous outlier
forecasts.

    About the survey:

    The ScotiaMocatta client sentiment survey was conducted during the period
March 8th - 23rd 2007 among a cross-section of ScotiaMocatta's clients
worldwide. Survey participants were asked to forecast prices for gold and
silver 3-months from the date of the survey and 12-months from the date of the
survey. Participants were also asked to rank in order of importance the three
factors they felt would most impact the precious metals markets over the same
time periods.

    About ScotiaMocatta:

    ScotiaMocatta is the precious metals division of Scotiabank and is a
global leader in precious metals trading and finance with roots dating back to
1671. ScotiaMocatta is a leading market-maker with operations worldwide
serving a diverse clientele of producers and consumers of bullion across a
variety of industries.

    About Scotiabank

    Scotiabank is one of North America's premier financial institutions and
Canada's most international bank. With over 57,000 employees, Scotiabank Group
and its affiliates serve approximately 12 million customers in some 50
countries around the world. Scotiabank offers a diverse range of products and
services including personal, commercial, corporate and investment banking.
With $396 billion in assets (as at January 31, 2007), Scotiabank trades on the
Toronto (BNS) and New York Exchanges (BNS). For more information please visit
www.scotiabank.com.