 |
|||
|
|||
|
|
||
February 13, 2009 | By: FP Trading Desk |
 |
As expected, no one appears to be too convinced about the outlook for commodities. In a series of lectures at the INDABA as a precursor to the actual event, skepticism was rampant amongst the presenters – except of course for gold.
Kevin Norrish, Director Commodities Research at Barclays Capital reckons only China will post growth in 2009. In his view, the decline in commodities demand will continue through all of the first quarter and much of the second.
Mr. Norrish discussed several indicators that point towards a weak commodities market. The outlook appears to be particularly gloomy for base metals. For instance, global steel production is expected to fall further in the first quarter following an estimated 20% decline in the fourth quarter of 2008.
Low consumer confidence is expected to depress copper, lead and zinc prices. Demand for base metals from other sectors such as consumer electronics is also expected to remain weak. As a result, recovery for base metals will be slow to come by, according to Mr. Norrish.
At current prices, however, only a handful of new projects would make economic sense and Mr. Norrish expects some supply side constraints for base metals. Capital expenditure cuts by base metal companies are also expected to continue. However, these are not expected to increase base metal prices immediately as consumer de-stocking that started in the latter part of 2008 is yet to be over.
One should watch respective inventory levels before making a brave decision to invest in base metal companies. The only factor that may provide some support for base metals is a revival of Chinese demand on the back of the government stimulus package.
The outlook for gold remains favourable largely due to investment demand. Mr. Norrish expects that the current strength will continue well into the second half of 2009.
This view was supported by Paul Walker, CEO, Gold Field Mineral Services (GFMS). According to Mr. Walker, higher investment demand would compensate for a decline in jewelry demand and de-hedging demand, thus leading to higher gold prices. Mr. Walker also expects mine production growth to be low in 2009.
Should gold prices continue to strengthen in 2009, much of the benefits will be felt by companies already producing rather than exploration companies. Availability of finances to bring exploration projects into production remains less than promising, thus weakening the investment case of exploration companies with little cash. Only those with considerable cash balances are likely to attract investors even in an environment of rising gold prices.
To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold to find out more. You may Sell Gold to us too.
[ Back To Home ]
Buy Gold & Sell Gold - Singapore Gold Bullion Dealer