Commodities | Apr 12 2006
Barclays Capital notes it took less than a month for copper to move from US$5000/t to US$6000/t whereas gold was a little more cautious in rising from US$500/oz to US$600/oz over a quarter. It is an all time high for copper, and a 25-year high for gold.
As both metals have now hit the analysts’ price targets, the question is: what now?
Copper, says Barclays, undoubtedly has a strong fundamental backing which justifies the price. Already tight inventories have been hit by renewed draw-downs due to supply disruptions such as the Grupo Mexico strike (the company has now declared force majeure), and already strong industrial demand has been elevated by investor buying.
Gold, on the other hand, does not have the same fundamental backing, says Barclays. The price has been fuelled by speculative buying due to geo-political tensions (Iran has now declared it has successfully enriched uranium), expectations of US dollar weakness, and predictions of more central bank buying or sale deferment.
(Jewellery has also played a part. See FNA News story "Gold: Maybe We Ain’t Seen Nothing Yet".)
Barclays thus warns that gold is far more vulnerable than copper to profit-taking and a violent correction should sentiment turn. The analysts believe copper investment is more sustained, and long term, whereas fly-by-night hedge funds have been punting in gold. Moreover, CFTC data shows a speculative overhang in short copper positions, while gold positions are simply long, long, long.
Should gold investors be scared? No, says Barclays. While both the US$6000/t and US$600/oz levels might provide a bit of resistance as significant figures, the bull run is not over yet.