Someone once said that there is always a bull market going on somewhere. Well, last week it certainly wasn’t in the metals markets. Bizarrely, the cause of the weakness in metals was the markets finally giving up hope on Greece. That put pressure on the euro, which fell by 1.6 per cent against the dollar. A strong dollar usually means weaker metals prices. At least in dollar terms, as the greenback rises values in other currencies will remain at similar levels.
Metal prices have been heading for a correction for some time. Even the fan club at RBS, under the guidance of Nick Moore, expect prices to consolidate this year, so the near nine per cent drop over the week in copper, to US$6,840 a tonne, should not have been wholly unexpected. Even so, it wasn’t very nice and it did no favours to the miners, until they put on a late rally on Friday.
In percentage terms the drop suffered by lead was similar to that suffered by copper. Lead was off by 9.6 per cent to US$2,055. Zinc did even worse, and dropped by dropped 12.1 per cent to US$2,150 a tonne. Aluminium and nickel escaped relatively lightly, however. Aluminium dropped by 5.9 per cent to US$2,097 per tonne, while nickely fell by 3.5 per cent to US$2,097 a tonne.
What makes these downward moves somewhat odd is that they happened in a week when the US recorded exceptionally strong economic growth. The latest data shows that the US economy grew at a rate of 5.7 per cent over the fourth quarter of 2009. As ever, the trick to understanding the data is to know what the market was expecting in the first place, and what it was not. The US growth figures were expected. What upset the market was that China denied it was going to refinance Greek debt after the Greeks dropped strong hints it was. As a consequence spreads on Greek bonds shot out to 400 basis points and the euro took a hit.
No one expects the euro to collapse because the Greeks have been economical with the actualité – no one’s surprised about that fast and loose approach in any case. But this situation does remind investors that the euro is actually a political fudge masquerading as an economic solution. Europe is saying let’s pretend Greece has a similar democratic and economic system as the rest of developed Europe, and let’s let Greece pretend to agree.
The more that compromise is probed and stretched the more strain it will put on the euro. That can only depress it relative to the dollar, which is anyway looking a lot better than the yen as the credit rating agencies are now starting to put Japan on negative watch.
The weak reaction of gold to all this tension is at first glance a little odd. Is the dollar a much better bet simply because everything else looks a bit worse? Not really. Nothing has actually happened to boost the greenback. It just looks safer in relative terms. Gold, even at US$1,076 an ounce, is the one part of the equation that cannot be tampered with.
So, over the next few months, and more, it would not be a surprise to see some of the recent confidence surrounding the global economic recovery drop away a little. That could put more downward pressure on base metals, due the metals’ economic sensitivity, and because their prices have already discounted a rosy scenario.
It might well be that higher levels of uncertainty could well translate into higher precious metal prices, as some supposed certainties start to unravel. For example, emphatic statements of support for Greece by senior politicians in the Eurozone might be viewed by some as a buy signal for gold.
source:minesite
Senin, 01 Februari 2010
Correction occurs in metals prices
