A rally in non-food commodities has taken bullion and a few base metals to new highs in 2010. The high prices in these commodities were the result of huge fund flows as the wealthy are converting dollars as fast as they can. From the investment perspective, silver has been the outperfomer followed by nickel, copper, gold and crude oil. Interestingly, brokers are cautiosly bullish regarding the outlook for base metals and crude oil. The caution stems from hype regarding the strength of global economic recovery.
During 2010, Silver has yielded a return of over 70% while gold has trailed returning 26.8%. The high price of gold led investors to look at silver as an alternative, which benefitted from an increased industrial demand. Unlike gold, silver takes cues from base metals since it doubles up as an industrial metal used in photography, jewelery and electronics.
Gold is up, flirting with the $1400 an ounce (31.10gm) chiefly due to a falling dollar and safe-haven buying. Interestingly, buyers, especially in emerging markets such as India, are looking at jewelery as an investment. Citing World Gold Council data, Angel Broking says global demand for gold in the third quarter stood at 922 tons, an increase of 12% from a year ago. Global jewelery demand has been increasing — 8% from Q3 2009, led by rising demand from India (the largest consumer), China (the second largest), Russia and Turkey.
In the first half of 2010, India’s jewelery demand increased by 67%. “The major beneficiary of the economic worries in the Euro zone was the bullion pack,” says Naveen Mathur, associate director (commodities & currencies), Angel Broking. “The price rise is expected to continue as slow recovery in the US and the Euro Zone will act as supportive factor for gold prices.”
