Demand or dollar weakness: what’s driving metals prices?

US consumer confidence hit a five-year low in March sending the dollar plunging yet again. The reading, at 64.5, was far below the consensus view of 73.0. This was the worst reading since March 2003, just ahead of the US invasion of Iraq. Now there’s a cheery thought.

As the dollar slid investors piled into commodities. It was all pretty predictable, really. Both corn and soybean futures on the Chicago Board of Trade ended the session limit up. And the rally has continued this morning.  Cocoa futures are up 2.75%….Cotton has risen 0.93%… Aluminium rose 2.05%… Nickel has added 3.45%…

Supply and demand are major drivers; it’s not just oil and the dollar

A new way to make money from metals

The FT reports on some interesting research from Lehman Brothers. The investment bank has launched a new index to track prices of non-exchange traded metals.

The broker has calculated that the prices of industrial metals that are not traded on exchanges are rising faster than on-exchange metals. The implication is that the fundamentals of supply and demand are a major driver in the current commodities supercycle. Tt is not merely an investment bubble.

Metals such as iron ore and cobalt are bought and sold privately; they are not traded on exchanges like copper, zinc and silver. Lehman’s new index has tracked these deals. The index has risen 598% from January 2002 to early this year. During the same period, an index of exchange-traded metals rose a mere 246%.

So, the commodity sector is not just a bubble built by speculative money flows and concerns over the dollar. This is evidence that there are real supply constraints and soaring demand is a major driver of prices. It isn’t just an investment driven bubble. The sector has real value and value always wins out.

This article is taken from Garry White’s free daily email ‘Garry Writes’.


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