Money and the Metals Markets

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Money money money, no I won’t admit to being an ABBA fan but their catchy song about sums up the metals markets this summer and is likely to be the most influential factor going forward into next year. Money in terms of the wall of cash out there buying into the dips and supporting prices whenever they drop back. Money in terms of first the flight to safety that pushed up the dollar and latterly the return of risk appetite that has seen the dollar slide as funds have moved into higher yielding currencies and the dollar used as a carry trade currency. Money in terms of the rise of metal ETF’s as investors have stayed out of equities and property and flowed into commodities. And money in terms of a growing unease about inflation and a falling dollar that still has further to go. The commodities markets have proved to be a safe haven for anyone worried about the falling value of their dollar holdings.

But how much longer will it continue? The probability is for some time. You only have to look at the back seat fundamentals have taken this year as prices have soared. There appears to be no lack of faith in the metals markets, indeed metals appear to have even taken preference over energy for the time being but for how long can metals prices outperform equities? With metals multiple planks of currency hedge, emerging market play and carry trade currency the answer is probably for some time, at least well into 2010. The China story isn’t going to go away even as the west struggles to meet consistent growth. The expectation is the Chinese will continue to spend to keep their economy growing. The bounce back has started in the west but with consumer spending down and unemployment increasing there will be a significant lag before company profits show strong and consistent growth. Until that time is looks like metals have it their own way.

–Stuart Burns

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