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Nickel, lead outshine gold, silver

By Peter V O'Brien

Friday 19th September 2003

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Gold and silver bulls have had a good year, although their gains until last week were behind those available from some other metals.

Equity investors in several major sharemarkets did better than traders and speculators in some metals.

The US Dow-Jones index increased 13.5% from the end of 2002 to last week, the broader-based Standard & Poor's 500 was up 15.8% and the technology oriented Nasdaq gained 38.8%.

London's FTSE put on 7.5% and Japan's Nikkei improved 24.9%. New Zealand stocks, as measured by the NZSX 40 capital index, gained 9.4%.

The 40 capital index is a better comparison with overseas markets than the NZSX50, because the latter is a gross index while the major international indices work on capital value changes.

A 9% improvement in the London gold price since December 31 looked modest until compared with a 32.6% jump between the end of 2001 and September 12.

There are three viewpoints about gold: people who think the "safe haven" idea of a de-monetised metal with few practical uses apart from jewellery is illogical, those who see gold in a supply-demand framework and a group that assesses gold prices in the context of other economic trends.

Newmont Mining chief executive Pierre Lassonde is among the last. His company is the world's biggest goldminer and recently acquired Australia's Normandy.

Mr Lassonde was interviewed a few weeks ago on Australia's Channel Nine Business Sunday TV show about Newmont's acquisition of Normandy in the context of the price paid and potential returns. He considered the London gold price would reach $US450 an ounce within a year.

An accord among central banks to sell 400 tonnes of gold a year into the market had restricted recent price movements.

Newmont saw a US budget deficit of $US450 billion as a bull point for the gold price and backed its view with a non-hedging sale price policy for its production.

The policy extended to the Normandy acquisition. That company had hedged 15 million ounces in the past but was now totally unhedged.

Silver's 8.9% price gain since December 31 can be put against a 14.8% movement from the end of 2001.

The metal is being pushed for reasons that appear unclear.

Investment in silver is even advocated in the unlikely medium of New Zealand's Radio Sport station where the programme's learned talkback hosts have engaged in the tired advertorial technique of asking advertisers' representatives "spontaneous" questions about products and their merits.

There is less logic in playing the silver market than the gold, apart from the obvious opportunity to benefit from other players' euphoria.

Constant gains in silver are likely to bring owners of the world's substantial amounts of the metal into the market.

Silver buffs seem to be ignoring the often-publicised point that there is no accurate assessment of world holdings of combined silver bullion, jewellery, coins and crafted objects.

The point could be irrelevant, because prices for anything will rise if people who believe it will happen outnumber those who have a contrary opinion.

Price gains for non-precious industrial metals were a combined function of supply and demand arising from a modest improvement in international economic conditions and a weak US dollar.

The latter can influence prices for commodities expressed in US dollars.

European or Asian buyers (or New Zealanders) effectively pay less for a US dollar if their currencies rise against the American. That can affect commodity pricing.

Rio Tinto chief executive Leigh Clifford summarised the state of the minerals industry in an address to the Securities Institute of Australia in August.

He said that while world economic growth was flagging, it should not be forgotten the distribution was uneven.

"At the moment demand is flat from traditional markets like Europe, the US and Japan, while Asia and especially China are bounding along. Demand for minerals continues to increase and should accelerate when western economies recover."

Mr Clifford said people needed to remember that GDP figures were, at best, a rough indication of mineral demand. They did not immediately reveal the extent to which metal intensive industrial productions had migrated to Asia from Europe and North America.

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