Base Metals: What to do now?
Summary
Everyone knows how well base metals have done this year. Indeed, boring old lead's price is up a scintillating 124%. We give you our thoughts on whether to climb in - or climb out, depending on what our Economic Clock® is showing about the Economic Time, and thus where we are in the economic cycle...Our view on gold was given you recently, by the way.Topics Covered
- Performance this year
- What the Economic Clock® reveals
- How to save money off this idea
Background
1. Performance this year
Year to date, here is how various base metals prices have performed (Financial Times, 12th October,p. 15):
- Aluminum: +23%
- Tin: + 36%
- Nickel: + 59%
- Zinc: + 69%
- Copper: + 103%
- Lead: + 124%
However, to continue plagiarizing from said FT.prices have stagnated since August - despite a weakening dollar. Normally, when the dollar weakens, commodity prices strengthen: this is because it now is cheaper for non-dollar based punters to buy into dollar-based commodities. Not so this time around.
Why so?
2.What the Economic Clock® reveals
For one thing, inventories have been re-built. "China's government acquired significant stocks of base metals in the first half of this yea to support its domestic smelting industry as part of the government stimulus program. Restocking activity followed elsewhere in Asia, but it has not spread into western Europe and the US as yet.,"
And neither the Americans nor the Europeans will re-stock. For one thing, prices are still to high for this,and secondly, the Economic Time® continues being characterized by an excess supply of goods, particularly in the West. So why re-stock?
Moving beyond re-stocking: if China has enough base metals for now, and if the West continues fearing a worsening Economic Time, then why should end-demand for base metals rise?
As a final point in this rich FT article: "RBS notes that the rebound in base metals prices has proved far more aggressive than the rallies in 1975 and 1982 which also followed big increases in oil prices. In 1975, metals prices rose 30 per cent from their trough, then relapsed, while in 1982, the market rallied by 42 per cent (and then retreated for a further 27 months."
3. How to Save Money Off This Idea
- Always consult your financial adviser first.
- Stay out of base metals for now.
- But buy gold, which is driven by different forces.
