Investors are a funny lot.
The phrase “herd mentality” may have been created to describe the behavior of our four-footed friends, but it applies equally well to the investor fraternity.
For months, the prospect of a slowing China and the departure of Greece from the euro have been on the cards, prompting some no doubt to pay close attention to managing their commodity risk — and yet metal prices actually rose in the first quarter. Finally it seems to have sunk in that these are real events the impact not just prices of copper, aluminum, nickel, zinc, etc. — oil, gold and other commodities have also fallen.
Source: Financial Times
Seeing this graph of the Thomson Reuters/Jefferies CRB Index, which tracks all major commodities, only in the last month have the risks of an overly slowing China and the rejection of austerity in Greece been reflected in commodity prices. As the FT reports this week, gold in particular has taken a beating down to a five-month low of $1,563.70 a troy ounce, as investors have reduced positions in “riskier” assets such as metals and moved to G-3 bonds and cash.
Interestingly, central banks remain strong net buyers of gold, monetary policy is expected to remain expansionary and, with China’s gold imports via Hong Kong at an all-time high in March, you have to wonder who has it right.
Worries about slowing growth in China have weighed on base metals, too. In particular, copper is down to the $7,800 range as demand for the balance of this year is taken as being less robust.
At what point do these prices become a buying opportunity for those consumers able to lock in prices for 3-6 months or longer?
We will be looking at aluminum in a separate article, but as a general observation one has to say it’s best not to stand in the way of the herd when it’s on the move — there’s likely more bad news out there, particularly regarding Europe, to keep the momentum going a little longer.