Diamonds and platinum group metals (PGMs) took centre-stage during a round-up of metals and minerals markets at the annual convention of the Prospectors & Developers Association of Canada, held recently in Toronto.
Martin Murenbeeld of Victoria, B.C.-based Murenbeeld & Associates noted that the past year’s rise in oil prices has not had an appreciable upward effect on the price of
Furthermore, high oil prices are no longer translating directly into more gold-buying among members of the Organization of Petroleum Exporting Countries, as a wider variety of financial instruments are now available.
Murenbeeld said that while low inflation rates continue to dampen any potential rise in gold, prices for the yellow metal are supported by demand that keeps rising and keeps outstripping new supply.
The U.S. dollar is overvalued, he said, and with that country’s current account deficit now approaching US$450 billion, the situation “can’t go on forever.”
Murenbeeld characterized the current financial environment as “dangerous,” and said he sees potential for monetary reflation in the U.S. This rise in the U.S. money supply should strengthen gold prices.
He said the gold market is “heavily short,” with net short positions on the Comex division of the New York Mercantile Exchange opening up early this year at 130 tonnes gold, or 4.2 million oz.
At the same time, the mine-supply outlook for gold is flat and declining. Murenbeeld said the main question is, When will the decline begin? — adding that the answer is complicated by the falling currencies of South Africa and Australia, which are encouraging gold production in those countries.
In his base-case scenario, Murenbeeld predicts that gold prices will average about US$280 per oz. this year and US$295 per oz. in 2002, based on a slight decline in gold supply, a “quasi-firm” U.S. dollar and further easing of U.S. monetary policy.
His more bearish scenario sees gold trading in the US$247-250-per-oz. range during 2001 and 2002, while his “gold-bug” scenario envisages prices of US$299 per oz. this year and US$345 in the next.
Jeffrey Christian of New York, N.Y.-based CPM Group said there has been a flow of bad information about markets for
He said supply problems were not the only factor in the dramatic rise in PGM prices in 2000 and 2001: the peaks in November and December were “purely speculative.”
An oversupply in palladium during for most of the 1990s has now turned into a deficit, but one that is closing quickly since “there is a lot of palladium out there.”
While palladium has been the “star” of late, platinum has also reached its highest price levels since 1986, and Christian would not be surprised if prices reached US$680 per oz. before the end of March. But for the entire year, he predicts a much tighter, and therefore more volatile, platinum market.
He emphasized the need to keep a close eye on PGM demand, with automotive use expected to continue rising but jewelry sales likely to drop off in Japan and perhaps China. He also noted that while palladium use is waning in semiconductors, it is burgeoning in the handheld, electronic-device market.
Christian marvelled at the large, new crop of juniors that are now re-examining low-grade nickel deposits for their PGM potential: “We have a real bubble here [in the PGM exploration scene], and investors should be careful.”
He then lamented the deteriorating
Still, overall silver demand keeps rising and the market remains in a large deficit, just as it was throughout the 1990s. Thus, Christian sees potential for a rapid price rally to US$6 per oz. within 12 months.
Matthew Manson, vice-president of marketing at
While the U.S. market is currently oversupplied in polish after a stellar year of “millennium diamond” sales, America’s baby-boomers are now entering the prime jewelry-buying age of 45-54, signalling good times for U.S. gem retailers well into the 2010s.
Amazingly, by 2006, Canada will have vaulted past South Africa, Angola, the Democratic Republic of Congo (DRC), Namibia and Australia in terms of value of diamonds produced, jumping from its current eighth spot to third, behind Bostwana and Russia.
Globally, the diamond market is undergoing a transformation as a result of
Manson also described how the diamond business is aiming to establish unique brand identities similar to those seen in other luxury goods. With Aber already teaming with Tiffany’s and with De Beers joining forces with French-based LVMH (Met Hennessy Louis Vuitton), this trend toward branding could soon boost the value of the highest- end diamonds.
He said the demand side of the equation had become “critical,” in particular the question of whether other economies will pick up the slack if the U.S. slips into a recession.
Buxton said the Japanese economy, with its hefty copper imports, is the “area of greatest concern,” along with South Korea and Taiwan.
“The long-term outlook for copper is not very encouraging,” he lamented, noting that the industry’s cost curve is steep compared with other commodities.
He expects the copper market in 2001 to perform much as it did in 2000, with a stronger first half and a weaker second half.
The supply side of the copper market holds the most bullish potential, with recent closures of high-profile mines in the U.S. coupled with expansions in politically dicey areas such as Iran, the Democratic Republic of Congo, and Zambia.
He said he expects nickel prices to remain “subdued,” adding that there probably will not be any competitive cost advantages from the PAL projects, especially if cobalt prices fall to US$5 per lb.
New nickel supply will be limited until at least 2005, he said, but Russian scrap will continue to overhang the market.
Ranieri foresees more consolidation in the base metals sector, which should weed out weaker projects and, in the end, lead to a healthier industry in which nickel trades within in a tighter range and cash flows are evened out.
George Jones, senior vice-president of
He said the industry should keep working to create more demand for zinc, which has grown by 2.5% per year since 1960. Currently, zinc is seeing increased use in light-gauge galvanized steel for residential housing and auto bodies.
Upstream, China is increasing its zinc smelting capacity and has begun to boost imports of zinc concentrate.
Jones said zinc prices are currently “volatile” but will probably stay flat in the US50-to-51 range until 2003.
He commented that zinc-oxide mines and processing facilities will not be a big factor in the future and will only significantly affect high-purity zinc markets, such as pharmaceuticals.