Metals at 2-yr high, rally may continue

Simultaneous rally in bullion, base metals may not last as long as growth normalises.

The prices of all metals, both base and precious, are rising. The latter are at an all-time high, while some base metals are at a two-year high and close to the all-time high levels seen in 2008.

While most analysts are bullish on both segments in the short term, some predict a simultaneous rally can’t continue for long. 

Gold is in the region of $1,345-50 per oz, while silver is at $23.30 an oz, a 30-year high.

While copper reached a 27-month high above $8,320 and is marching towards the all-time high of $8,965, tin has already crossed the previous record and is trading around $26,025.

GAINING STRENGTH
LME ($/tonne)	Two-year high*
	Date	Value
Aluminium	Apr 16, ’10	2,447.50
Copper	Oct 7, ’10	8,262.00
Tin	Oct 7, ’10	26,550.00
Zinc	Jan 7, ’10	2,634.50
Lead	Jan 7, ‘10	2,591.00
Nickel	Apr 16, ‘10	27,600.00
Reuters/Jeff CRB All Comm Index	Oct 5, ’10	487.89
Reuters/Jeff CRB Metal Index#	Oct 11, ’10	2764.09
* Two-year high period taken from October 1, 2008 to till date, # As on Oct 11

Aluminium is trading at $2,425 and nickel ($23,705) and zinc ($2,232) are not far from their two-year-highs on continued demand due to improving economic fundamentals and a weakening dollar. The CRB metal index and the all-commodities index are at two-year highs.

However, London-based Natixis Commodities questions the rally. It asks if it is reasonable for both base and precious metals markets to rally so strongly at the same time.

“In the short term, the internal logic for higher prices in both the markets is entirely reasonable, but over time we suspect one market will prove to be right and the other will be disappointed. Our own expectation is that continued economic growth will support base metals, while a gradual return to economic normality will eventually undermine the precious metal market.”

Gold is rising because of fear of economic uncertainty, while metals are rising following the hope of improvement in economies, goes the reasoning.

Even the International Monetary Fund has said in its latest outlook on global economies that the “demand should continue to support commodity prices as the global recovery progresses.”

The near-term commodity market outlook was benign, given global cyclical conditions, said IMF, while commodity prices were projected to remain high by historical standards over the medium term. Its analysis says demand will continue to go up, while supply response will be sluggish due to the lag effect.

Generally, supply improves following demand and price rise. IMF is equally bullish about the demand for crude oil due to continuing economic recovery.

Natixis’ projections are in line with those of IMF for base metals, but it is sceptical about gold prices.

The prime driver for gold was fear of an economic crisis, which was evaporating, Natixis said. “In offering a safe-haven store of value for investors, gold prices are now pricing in a very expensive option on global meltdown. We remain sceptical of gold’s ability to rise indefinitely and expect the turning point in the gold market to materialise far sooner than the market consensus.” Source: Business Standard