Precious metals surge into 2008
The cynical market analysts who believe that the precious metals boom has run its course have been firmly put in their place in the first two weeks of the New Year. Both gold and platinum have continued last year’s trend, surging to record highs as 2008 gets underway.
While the JSE All Share has fallen more than 10% from its 2007 high, gold continues to build on its 31.5% 2007 gain to reach a new peak above $900 per ounce. The metal traded as high as $914.40 per ounce earlier this week before retreating slightly to $910 per ounce at the time of writing.
International uncertainty helps to crush a 23 year record
The latest price movement has taken the precious metal way past its previous record of $850 per ounce set in the mid 1980s. And these gains have occurred despite the gold already posting six consecutive years of gains. Why is the precious metal so strong at the moment?
The gold price, like that of most commodities, is a function of supply and demand. And demand for gold remains high during times of political and economic turmoil. A quick look at the world as we enter 2008 reveals conditions in which gold should continued to perform well. International financial markets remain shaky due to concerns over the extent of the US sub-prime problem and subsequent credit squeeze.
And there are growing concerns over the possibility of renewed Middle East tensions as US President George Bush reiterates his country’s hard-line stance on Iran’s nuclear development programme. Political instability in another nuclear nation (Pakistan) is also on the rise in the aftermath of the assassination of Pakistani opposition leader Benazir Bhutto, late last year. Add ongoing conflicts in Iraq, Afghanistan and the unresolved Palestine/Israel issues to the mix and the case for gold becomes stronger than ever.
Because investors look to gold as a safe-haven investment the uncertainties mentioned above should ensure that the gold price remains above the $900 per ounce level and even help it surge past $1000 per ounce during the course of the year.
Platinum shares take off
Although the gold price is good news for South Africa’s smaller mining houses, the overall gold index has remained lacklustre over the past few years. The reason is South Africa’s major gold miners (Anglogold, Harmony and Goldfields) continue to struggle with declining productivity and escalating costs as their reserves become increasingly inaccessible.
Fortunately the platinum miners are not experiencing similar problems. On Monday, platinum followed gold’s example in racing to a new high of $1 592.50 per ounce. The case for platinum is generally stronger than that for gold due to global demand for the metal exceeding physical supply. Supply side constraints have been exacerbated by production problems at some South Africa’s larger platinum mines. Platinum (and its group metals) are used in the manufacture of catalytic converters for motor vehicles.
JSE listed platinum shares enjoyed a field day on Monday, helping the JSE platinum mining index to post a gain of 5.13% in a single day’s trade. Top performers included Impala Platinum (+5.79%), Northam Platinum (+7.27%) and Aquarius Platinum (+2.29%).
Outlook less bullish for base metals
The International Monetary Fund (IMF) recently released its 2008 World Outlook which reveals that the New Year would bring weaker copper and zinc prices due to a surge in capacity as new mining projects come on stream. “In contrast, nickel, tin and uranium still face more serious supply constraints and, therefore, higher possibility of upward price movements,” said the IMF.
So while precious metals should retain their shine, the outlook for some of the less ‘fashionable’ base metals is less rosy.
Editor’s thoughts:
The JSE All Share Index is down more than 10% from the highs reached in 2008. Early indications are that while selected resources stocks will perform well in the full year general equities will be hard pressed to mirror returns since 2003. Do you believe equities could deliver negative returns in 2008? Add your comments below or send an email to [email protected]
