Commodities | May 09 2006
By Rudi Filapek-Vandyck
Forget about gold or platinum or silver, if any of the metals has surprised friend and foe thus far it’s copper. The red metal reached a new all-time high on Friday (US$7,800/t for the three months delivery contract) and market watchers are hard pressed to not use the term "phenomenal" when they’re commenting on the metal these days.
Since the beginning of calendar 2006 the spot price of copper has risen 71%. When will it all end?
Metals specialists at UBS believe that speculators and investors buying into copper’s tight supply and demand fundamentals only explains part of the sharp price increase thus far.
UBS sees another reason in the capitulation by the so-called "large shorts" that have covered their market positions over the past few months. According to the broker, China’s State Reserves Bureau (SRB) and hedge funds are likely to have now closed out the remainder of their short positions in the market.
This would imply that a price correction has now become more feasible.
The metals specialists agree with Silver Stock Report’s Jason Hommel (see our story yesterday) that Warren Buffet selling out of the silver market has possibly opened the gates to further price gains for the metal as it removes a massive potential overhang.
UBS is "confident" silver can still make strong gains, but the recently introduced silver ETF needs to continue reporting steady inflows. The latest indications are that money inflows into the exchange traded fund or ETF are slowing, but UBS is not worried.
The metals specialists do acknowledge, however, that any surprises from the US Federal Reserve or from the Chinese authorities may trigger profit taking in precious metals across the board and therefore advise investors to remain cautious.