Metal prices hit all-time high
December 12, 2005 13:29 IST
With the prices of precious as well as base metals spiralling to new highs, a feeling is gaining ground that this can be the beginning of a crest in the commodities cycle.
The evidence is compelling. Copper prices globally are at an all-time high, platinum at 25-year high, gold at 24-year high, silver at 18-year high, zinc at 16-year high, aluminium at 10-year high and tin at a eight-year high.
Interestingly, for about a month, both dollar and gold prices have been rising, though traditionally the two have shared an inverse relationship with one providing a hedging option against the other.
Internationally, the demand for commodity investments is showing no signs of subsiding. "Although commodity investments are still small in relation to the total ... their share has risen from just 1.5 per cent of all issuance in 2004 to just over 2 per cent so far in 2005," said a note by Barclays' Capital, an international brokerage.
Short positions held by speculators in the US commodity markets is more than ever before. This indicates that funds have started increasing their exposure
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to commodities, which seem to have emerged as a good hedge against inflation.
While correction is expected in most commodities, as these are highly overbought, analysts say a slight downward movement in the short-term is imperative for a sustained upward swing in the longer term.
A commodities bull run usually lasts a decade. The idea gets support from the view that the global stock scenario, especially in case of precious and base metals, is likely to witness more demand than supply for the next five years.
Globally, mining of most metals has remained stagnant for the last two years, largely due to industrial action, maintenance shutdowns, technical glitches and feed shortages.
For instance, global nickel production in 2005 will be lower by 44,000 tonnes. Gold output is likely to fall about 3,000 tonnes every year for the next five years.
However, Alex Matthew, a senior analyst with Kochi-based Geojit Securities, does not believe that a commodities bull run is in the offing. "At present, it can be called technical recovery and not a bull run," he said.
