Stay with precious metals, urges RBS, but ensure also that you have industrial metal exposure. April heading to be the best month for prices in 40 years. Zinc is expected to slip into deficit next year and copper in 2011, but aluminum is carrying heavy inventories that may yet increase further."
That's how Rhona O'Connell from Mineweb.com summed up the latest report from RBS and gave some details that bodes well for precious metals.
After taking quite a hit on Tuesday we are seeing a pleasing rally in gold and silver on Wednesday. To me it will be significant if gold can break above $900 and head towards $920 with silver breaking through the $13 an ounce level.
The latest quarterly Commodity Companion from Royal Bank of Scotland records that the RBS Base Metal Price Index has since the end of 2008 risen by 20% and is on course for further gains. Despite the fact that there is as yet little sign of any real demand growth, a number of elements have allowed commodities to prosper, and base and precious metals have taken the limelight with oil, natural gas and steel having to take a back seat.
The primary factors behind the increase in metals prices so far have been; a) monetary and fiscal stimulus, 2) hefty supply cutbacks) Chinese metals stockpiling and d) the "cash-for-clunkers' boost to auto sales.
The publication is a comprehensive volume covering not just the precious and base metals, but also bulk commodities, energy and the steel sector, each of which have their own individual profiles. For now, precious and base are where it's at, but there is light on the horizon elsewhere in the sector as we look further out.
RBS takes a reflationary view on the economy and is looking for anaemic world GDP growth this year, but is expecting a rebound to 4.0% in 2010. The analysts note that in a volatile world themes, not forecasts, are perhaps most important and that "if you are seeking indicators of the upturn in the world economy, then look no further than metals themselves!"
While platinum and palladium are expected to continue to outperform gold and silver, the favoured base metals are copper, zinc and lead, followed by nickel while aluminium brings up the rear among the base metals. Bulk commodities, however are expected to record hefty declines in annual benchmark settlements.
Oil's resurgence is further down the road according to RBS but the outlook for natural gas remains forlorn, while steel is expected to stabilise in the second quarter of this year after a tough first quarter.
