GOLD RUSH
IS THE RUN ON SAFE HAVEN COMMODITIES OVER?
According to a recently released report by the Washington based International Monetary Fund1, the world economy is on
the rebound much more quickly than originally anticipated. Will gold, silver and other commodities, which became the darling of investors and traders in 2009-10, now lose their sheen?
Ò THIS MAY BE
JUST ANOTHER BUBBLE READY TO BURSTÓ
With a rapidly growing Chinese and Indian consumer base and a recovering global economy, commodities may still be in high demand. Per capita consumption of gold in China is still among the lowest among the larger developing economies2. It is 11% of the global demand and this is unlikely to come down with a prospering Chinese population. A return to the economic growth path would also mean investments in industries and infrastructure by countries and this is likely to fuel further demand for hard commodities. Commodity-based economies
like Canada are likely to see strong economic growth. The soft commodity prices will be a function of population growth, harvest and general economic conditions.
The US energy department has revised their 2010 crude oil (West Texas Intermediate) price forecast from $80.06 (£52.08) to $80.74 (£52.52) per barrel. This is up from last year’s average of $61.66 (£40.11) last year3. Copper prices are nearing the $8000 (£5204) per tonne mark from around $7500 (£4879) per tonne at the beginning of the year as per trading figures on the London Metal Exchange (LME)4. On the same exchange, steel billet prices are hovering around $585 (£380) per tonne, up by around 40% from the beginning of the year. This points to a significant overall recovery in construction and infrastructure. Jim Rogers, author of the book ‘Hot Commodities: How Anyone Can Invest In The World’s Best Market’5 points out in his book that the next great bull market will be in commodities. While the overall consensus is toward a strong commodity market in the foreseeable future, there are also those who believe that this may be just another bubble ready to burst. Veteran Wall Street economist, Henry Kaufman, also believes that ‘speculative fervour’ is resulting in a bubble forming in the commodities market.
1 - http://www.imf.org/external/pubs/ft/weo/2010/update/01/index.htm, http://www.reuters.com/article/idUSLDE63307520100404 2 - http://www.gold.org/assets/file/pr_archive/pdf/China_Report_press_release.pdf 3 - http://www.eia.doe.gov/steo 4 - http://www.lme.com/copper.asp 5 - http://search.barnesandnoble.com/booksearch/isbnInquiry.asp?userid=5T4amvHARr&isbn=140006337X&itm=1
As a beginner trader or an investor, it is important to understand the basics of the market, the driving forces behind them and initially deal in commodities which are easy to understand and makes real sense in everyday life.
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