Commodity Market Overview

Precious metals and commodities investing

Investors should be advised that the commodities markets are as deep and varied as they are complex. Precious metals, Crude/Heating Oil and Gasoline trend differently and are affected by stimuli that are not connected with food-based commodities or even base metals such as iron, copper or aluminum.

After spending much of the 1990s in the shadow of surging equity markets, commodities began moving to center stage in the early part of this decade. Those countries, along with other developing nations, are placing increased demands on limited supplies of key natural resources such as copper, lead, nickel, zinc, platinum and silver.

At the same time, a growing and more affluent middle class, especially in China, is heightening demand for jewelry and consumer electronics, while production of gold, silver and the platinum group metals has remained essentially flat. Additionally, in the wake of the introduction of metals-related exchange traded funds, investment demand for gold and other precious metals has seen a marked increase. Given the fact that gold has tripled in price over the last five years, the big boost in investor demand is understandable.

Adding to the interest in commodities priced in U.S. dollars is the weaker tone of the greenback, which is down over 29% from its 2002 highs and, given the current monetary policy of the Federal Reserve Board, looks to be headed lower.

The primary catalysts for the surging commodities markets are the Chinese and Indian economies. China itself is accounting for a majority of the demand and has quickly become the world’s number 1 producer and buyer of Gold. It has also recently made significant inroads into the petroleum and refined petroleum product markets in Russia, putting upward pressure on the prices of both crude oil and Palladium. With its surging automotive market, China is also now a major consumer of Silver and the PGM metals group (Platinum, Palladium and Rhodium). As well, China and India are now major players in the automotive market, at least domestically and between the two has more than made up for any slack in the demand from the United States and Europe.

Overall, commodity markets, especially the metals, are attracting considerable investor interest and look to be poised to produce substantial gains in the months and years ahead.