Commodity Blog

Posts Tagged ‘base metals’

Gold may slid after the dollar rebounded against the euro, cutting appeal of the metal as an alternative asset. The greenback rose on concern about Greece’s debts last month. Gold have tendency to move inversely to the U.S. currency.

Yet there are some factors that can support the metal’s price. Commodities’ prices may go up as U.S. economy advanced at a 5.9 percent annual rate in the fourth quarter, the greatest pace in six years. Chile earthquake boosted the base metals prices, possibly pushing other commodities up. Africa’s biggest gold mines may halt due strikes, decreasing supply of the precious metal.

April futures for gold delivery fell $1.20 (0.1 percent) to $1,117.70 per ounce by 11:28 on the Comex division of the New York Mercantile Exchange. Immediate delivery for gold was at $1,117.30 in London.

Silver has history of being a traditional store of value. It is also used in industry, medicine, photography, jewelry manufacturing and in the making of coins. But should investors consider this precious metal when devising their trading strategies these days, when everyone’s attention seems to turn to gold, and how the commodity will perform in the future?

Analysts predict that silver will follow gold performance, which means it should steadily rise in 2010. It is not unexpected if we’ll recall the fact that most factors favorable for gold, like declining dollar and demand for commodities as investment assets, are also bullish for other precious metals, including silver. But, what’s even more interesting, some factors, that are bearish for gold, are in the same time favorable for silver. Just think how many investors and consumers will be repelled from gold by its skyrocketing price. And all these people may turn their attention in silver.

There are still some factors which are bearish for silver. With widespread use of digital photography demand for silver in photography industry was diminishing at pace around 10% a year and even 16% in 2008. Yet this decline in demand can be easily offset by demand from other industries like medicine, where silver used because of its antibacterial qualities. And while new technologies are replacing the old, silver is finding new applications, laptops and cell phones being the examples of modern technologies requiring silver.

Demand from industry rise as economy rebounds. Will supply satisfy this demand? It is not likely. It is true that output in China Russia, Mexico, Peru, Australia, Turkey and Bolivia is growing. But about 80% of silver are mined as a byproduct of other base metals and there are only a few pure silver mines left, with their reserves are depleting. And we should remember that most silver is not recycled, like gold, as it has much lower value. Therefore silver is gone forever after it is used.

Demand for silver is rising while stockpiles are dwindling. Analysts estimate silver price in 2010 in the range from $25 to $27.50. But as silver is greatly undervalued compared to gold, we can expect even greater increase in price of the precious metal in the future years as trader turn their attention to this less expensive but quite profitable commodity.

Base metal share prices are soaring this year as investors look for growth from China and India, but the recovery in commodity prices could be slow.
“With several uncertainties still surrounding the global financial system, the recovery will likely be later than originally thought, and much more shallow,” said Dina Cover, an economist with TD Securities Inc. in a report to clients.
TD Securities expects its TD Commodity Index will rise 25 per cent through 2010, which is less than half the rate it had previously forecast. “Excluding energy, the index will advance by a more muted 8 per cent (previously 22 per cent) next year.” Oil prices are forecast to rise almost 40 per cent.
Realization that world economic growth will fall short of expectations could result in a further 7-per-cent decline in the commodity index during the second and third quarters of 2009, Ms. Cover said.
The base metal stocks could be vulnerable. The S&P/TSX metals and mining index has climbed 68 per cent from depressed levels this year, compared with only a 1-per-cent rise in the S&P/TSX.
“While it is the case that production has been curbed in recent months, these curtailments have not prevented inventories from growing dramatically,” she said.
The rise in the investment demand may also be more tepid than expected. Ms. Cover predicts investors will gravitate to equities rather than making direct investments in commodities over the next 12 to 18 months. “Equity markets, in particular, will be an attractive lure for investor flows once the global economy begins to recover,” she said. “They have a major advantage in that they pay an income stream.”
However, by the end of 2010, TD expects zinc prices could increase almost 40 per cent, nickel and aluminum almost 20 per cent and copper 15 per cent. Galvanized steel producers, which use zinc, have been holding inventories in check.
Much of the recent investor enthusiasm for lead, zinc, aluminum and nickel stems from the rise in copper prices, one of the most economically sensitive metals.
Copper has increased to $1.94 (U.S.) a pound from a low of $1.26 a pound late last year. Scotia Capital Inc. estimates the average break-even cost for copper, including depreciation and interest expenses, is $1.36 a pound.
However, some of that strength stems from buying by China’s State Reserve Bureau, which could exit the market, causing a quick price drop. “Copper prices … likely have the most room to fall, while the rest of the base metal prices are already well below [their] marginal cost of production,” Ms. Cover said.
Although demand for copper will be poor and prices may fall over the next few months, it is “unlikely to test recent lows as financial conditions are improving and secondary supplies are sliding due to relatively low prices,” said Bart Melek, global commodity strategist for BMO Nesbitt Burns Inc.