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Roaring Gold, is it bullish for base metals?

20/04/06

As gold prices rally strongly in the face of the weaker dollar, strong oil and heightened concerns over Iran, the base metals showed some signs of weakness. Could it be that some of the factors pushing oil and gold higher ie President Bushes comment that all options are on the table, are not necessarily bullish for industrial metals – time will tell. That said, commodity index funds are likely to be buzzing with the recent gains in oil and gold so it would be understandable if the base metals shake off their Wednesday evening weakness and rebound to the highs.

Another area to watch is the bonds, the 30 year bond moved above the 5% yield mark in early April and the 10 year bond has followed. Will rising interest rates threaten economic growth (bad for demand for industrial metals) as well as provide a safe alternative investment for funds which may encourage them to take profits in risky and overbought markets such as commodities. This doesn’t mean that the trends are likely to change in a hurry, but it may start to dampen some of the bullish outlooks for this leg of the super cycle. Also with the IMF’s latest World Economic outlook expecting a realignment of exchange rates with the dollar needing to depreciate significantly, it may wwll bring with it greater risk to the financial markets which in turn could undermine confidence and economic growth. With this in mind it is easier to remain bullish for gold than it is for the industrial metals.

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