Zeniths & Abysses

20 10 2009

The mining and metals community, since the beginning of the year, has had love for copper and gold only. Other metals unless they bottomed tragically were left outside news coverage as average performances are a bore to report on. It now seems that copper and gold may have reached their zenith as other metals and minerals are ready to take off

Gold: its 15 minutes could soon be over…

With gold reaching a new record price almost everyday, how dare I tell you that the fun may be over? With speculation being the sole driver of price increases, the enthusiasm of some will eventually deflate. Investor switching out of gold exchanged traded funds is indicating that to some degree. Since Q1 inflows in gold ETFs followed by Reuters has been steadily decreasing. In Q3 inflows amounted to just over 697,000 ounces in Q3, against 995,000 ounces in the second quarter. The weak physical demand is worrisome and leads to question the sustainability of current gold prices although they are expected to remain around the US $1000 level for the next few months as USD remains low.

Copper: feeling the pinch?

Are prices running ahead of demand? 5-month record high LME inventories can give an indication of that.  Chinese stockpiling, improving macro data and new investor cash have helped copper prices more than double this year but Chinese demand for the metal has been declining for three consecutive months as stockpiling slows. Freeport-McMoRan Copper & Gold Inc said on Monday (Oct 12th) that the copper market’s prospects for next year are as yet uncertain and a strong Chinese economy will be key to demand.

Silver: in no way second.

Like I mentioned about a month ago silver is doing well and will continue to do so. This year silver has taken much of its price direction from gold (and copper to some extent), With half of the demand for silver coming from industrial uses, the expected economic recovery will further propel prices for the metal.  Silver prices have already increased 87% this year while gold prices have increased 48%.


Rough diamonds prices have been picking up in the past weeks (Rio Tinto raised its prices by 15%) and companies have restarted mines and processing capacity which is good news after  prices falling 65% this year.

 It is unclear if demand is rising in developed countries as producers are unsure whether the increase in sales is due to restocking ahead of Christmas or to genuine demand growth. That is what we will find out after Christmas. In the meantime, strong growth in demand can be seen in China and India.

All things considered, it could be secondary to determine whether demand is really picking up as the supply of diamonds is at so tight a price bubble may be expected according to RBC Capital Markets’ report titled “Diamonds – Where Will All the Rough Come From?”. The bubble-potential stems from the top diamond producers reducing their output significantly this year whilst new mines will be operational in 2011, at best. Leading to 2011, we expect African and Russian mines, which are older, to start producing less.

Nickel: your ultimate underdog

Word on the street is that nickel prices may have turned the corner. Nickel now has a new floor price and will be a top performer in an upcoming commodity supercycle underpinned by growth in Chinese demand. This is what was reported from the Australian Nickel Conference. Those conclusions sound like echoes from a previous commodity boom, just as if a consultant recycled content from a 2007 presentation.

Still, it can be interesting to have a look at nickel in light of its longer-term prospects due to its uses in new alternative energy forms such as nuclear, solar and wind that could help broader nickel uses beyond stainless steel which accounts for two-third of nickel demand. Despite stainless steel output rising 24.5% from Q1 to Q2, nickel prices have remained significantly low as LME inventories remained high as the LME is the market of last resort for nickel and does not deliver ferronickel, the material of choice for stainless steel. With idled capacity resuming operations, the next big move for nickel is expected to be on the downside.

Shortages or tight supply is expected to be an issue for commodities as idled capacity could take time to restart. Prospects are uncertain for many commodities as Chinese imports are expected to lower for the second part of this year although this does not make consensus. Of note, Goldman Sachs is cutting its exposure to commodities as other banks like JPMorgan Chase have increased their exposure steadil throughout the year. More on that here.




2 responses

20 02 2013

Hello! I know this is kinda off topic

but I was wondering if you knew where I could locate
a captcha plugin for my comment form? I’m using the same

blog platform as yours and I’m having problems finding one?
Thanks a lot!

10 03 2013
Martha Black

I wouldn’t know about the captcha plugging as it seems to work fine automatically.

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