New factors may have a long-term impact on the prices of crude oil and gold, reports Sherine Nasr While the values of crude oil and gold slightly picked up mid-week, the costs of both commodities had for a fortnight hit their lowest points in months, impacted by the Russian- Georgian military confrontation. On Friday, the price of gold fell by over 20 per cent to $860 per ounce, before it firmed up again to around $863 during this week. The precious metal slipped to its lowest point since March after months of maintaining a record high of $1033.9 per ounce. "A downward spiral this week priced one gramme of 21 carat gold at LE126 on Monday and then LE121 on Tuesday," revealed Maher Messiha, a goldsmith. Prices had hovered around LE132 per gramme a week earlier after a drop from a record high of LE158 during the first quarter of this year. "The price was unheard in the gold market," asserted Messiha. Falling oil prices and regained strength by the US dollar against the euro are believed to be the two main factors behind the latest decline in gold prices. "The decline in the value of gold will not have a significant impact on sales unless it continues for a substantial period of time," noted Messiha. He explained that price fluctuation is detrimental to the gold market, because it creates "a state of uncertainty" among clients who fear buying at a high price when the value could drop soon. Moreover, a market revival will most probably be delayed until the end of the fasting month of Ramadan and the beginning of the school year. "The gold market usually experiences a slowdown during both occasions as purchase power is directed to other expenses," the gold trader disclosed. Following Ramadan, the market quickly picks up again during Eid (Lesser Bairam), a typical season for engagements and weddings. In the meantime, crude oil plunged almost $30, or 21 per cent, to around $116 per barrel (pb) last week, before it rose again by $1 on Monday, as fighting between Russia and Georgia disrupted some oil exports from the Caspian region. Oil prices during this month fell from a peak of around $147 which prevailed during the first half of July. Falling oil prices have helped the cost of other commodities go down on the international market. While farm commodity prices fell by an average 25 to 40 per cent, gold dropped by 22 per cent. The Organisation of Petroleum Exporting Countries (OPEC), the source of over one third of the world's oil, pumped more crude for three consecutive months in an attempt to help contain escalating oil prices. In July, Saudi Arabia, owner of most of the world's spare capacity, pumped 9.7 million barrels per day (bpd) -- the highest in 27 years. The move was aimed at boosting supplies and was done without formal agreement with other OPEC members. However, the military conflict in Georgia and Iran's nuclear crisis can push prices higher again. Reuters said on Monday that the conflict over South Ossetia has prompted the suspension of crude oil shipments and refined fuel from two of Georgia's ports. At the same time, "tensions between Iran and the West over its disputed nuclear programme, and concerns that Israel or the United States could attack Iran have been a key driver for oil prices in recent months," stated the news agency. Iran's Petroleum Ministry news agency Shana quoted OPEC's President Chakib Khelil as saying that OPEC members should keep oil output within the group's agreed targets. "Except for Iraq and new members who are outside the OPEC quota, the rest of the members should produce in the framework of their committed quota," Khelil said. It is worth noting that the OPEC reference basket (ORB) of crudes has increased over the past few years from an average of $28 a barrel in 2003, to $130 in June 2008. OPEC's production, not including Iraq, would increase to 36.9 million bpd by 2010. Production can rise significantly once Iraq is back on the list of oil producing countries. Factors determining crude prices are clearly not those of supply and demand, because the market has been kept well-supplied even during the oil peak period. According to OPEC's World Oil Outlook 2008 report, there has been more than enough supply to meet demand, and oil stocks in major consuming countries at comfortable levels. "But the challenge, particularly, for OPEC, stems from the uncertainty over how much future production will be required to satisfy demand for oil while making available sufficient levels of spare capacity," indicated the report.