Central Bank Credit Crisis May Be Positive for Gold and Copper

Source: Mineweb.com  (12/18/07)

Metals analysts John H. Hill, Graham Wark and Paul Cheng said that "recent Fed action, and co-ordinated central bank intervention to thaw credit markets, could be positive for mining and metals if it staves off debt-driven deflation/recession, or spurs the next leg of the re-flation trade.

Citigroup recently suggested that the "defining features of 2008 may well be reduced volatility in metals prices, and key equities finally moving closer to full market multiples."

Metals analysts John H. Hill, Graham Wark and Paul Cheng said that "recent Fed action, and co-ordinated central bank intervention to thaw credit markets, could be positive for mining and metals if it staves off debt-driven deflation/recession, or spurs the next leg of the re-flation trade. In many ways, this makes M/Metals a test case for global growth re-balancing."
,br>"Our sense is that the ‘non-surprise' of 2008 will be that the U.S. slips into recession, and that the ‘surprise' will be that M/Metals prices remain robust, as suggested by the 5-year futures on copper and aluminum," they advised...

Citigroup observed that "gold is oscillating around $800/oz as speculators have locked in profits. We view the outlook favorable for a test of $1,000."

The analysts said they see precious metals "as well-positioned given the inherently re-flationary implication of Fed and Central Bank action. We would expect strong safe-haven demand in the event of U.S. recession." However, the analysts also noted that gold equities have been underperforming bullion in the fourth quarter "as investment demand has slackened.

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