Posted: Mon, 04 Feb 2008
[miningmx.com] -- THE outlook for commodities generally is good but platinum group metals (pgm) should do better than gold over the next few years. That's according to several presentations given at the Mining Indaba being held in Cape Town.
Martin Murenbeeld, chief economist for DundeeWealth Economics, told delegates that commodities had become a new class of investment and “there is huge room to grow in that asset class.”
He highlighted the likely beneficial impact for commodities to come from what he described as a “second leg” of the depreciation of the US dollar which would happen as Asian currencies, in particular China’s renmimbi, strengthened against the US currency.
“That will be far more important for commodities than the dollar’s decline against the Euro because the Asian economies as major consumers of commodities. As their currencies strengthen against the dollar the local price of commodities will decline and local demand will rise,” he said.
Murenbeeld also highlighted the role being played by sovereign wealth funds (SWF) being built up by countries holding trillions of US dollars in their foreign reserves.
“What you are seeing is that some of that money is being used by those countries to secure their sources of commodity supply,” he said.
Paul Walker, CEO of UK-based metals consultancy GFMS, said that, while GFMS was bullish on gold’s prospects this year, the firm was concerned about the downside risk for the metal looking 12 to 18 months out.
Walker said GFMS’s latest prediction on the gold price was for it to average $866/oz and it could go as high as $1,001 in what he said could be a “very choppy market.”
Said Walker: “We are in a genuine bull rally in gold across the board in various currencies. I believe gold is dancing to its own tune and the rise in the price is not just a function of weakness in the US dollar."
But he highlighted the negative impact that high gold prices were having on jewellery demand as the reason that GFMS was now “starting to detect the end of the bull cycle in gold."
Walker said jewellery demand was the “bedrock” of the gold industry. “The jewellery sector is pivotal in setting a floor under the gold price. That’s why we find it extremely difficult to see gold falling below $820 but prices above $850 are hurting jewellery demand.”
According to GFMS statistics jewellery demand had dropped from 80% of total gold demand in 2001 to 63% last year.
Walker said investment demand was sufficient “at the moment” to compensate for lost demand for gold from fabrication, but he pointed out that, for the first time in 15 years, new mine gold supply was greater than “net” demand for the metal.
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“That’s why we are predicting the potential end to this rally when investment demand for gold weakens or turns negative. We have not seen massive investment flows into gold because, if we had, I would be standing in front of you with a shaven head,” Walker commented in a reference to his bet with Gold Fields CEO Ian Cockerill.
The bet is that Walker will shave his head if gold gets through $1200/oz by the end of this year.
By contrast, the risks for the platinum price are to the upside according to Stephen Forrest, MD of consulting firm SFA Oxford.
Forrest predicted a long term price scenario for platinum ranging between $1,350 and $1,550 because of forecast shortfalls in platinum supply which would be at their worst between 2009 and 2011.
The main reason for the likely shortfalls was supply problems from the South African mines because of safety issues and Eskom’s power crisis.
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