Global investment in commodities hits $175b

JAVED MAHMOOD
KARACHI - As the international prices of different commodities continued to rise last year, the global investment in commodities has set a new record by hitting 175 billion dollars in the calendar year 2007. Last year the investment in commodities, especially gold, marked an increase of 40 billion dollars and expanded to 175 billion dollars highest mark, The Nation learnt on Monday.
It was learnt that the foreign institutions and investors were making huge investment in commodities, especially metals, as they anticipate further increase in their prices in 2008.
Financial sector analysts believe that massive investment in gold and other commodities had also created a recession in the global stock markets as investors had diverted some proportions of their investment towards glittering gold.
Gold had taken lead over other commodities regarding increase in its prices, especially during the last couple of months. For example, the spot gold prices increased from $808.25 per ounce in November 2007 to $811.45 in December and further improved to $914 an ounce on 14th January 2008.
This is greatly associated to both tight fundamentals and encouraging external factors as the weakening dollar and declines in major stock indices around the world. Likewise, with macro-economic uncertainties and interested rate cuts by the Fed, gold appears as a safe investment against inflation and the falling dollar. Speculative length in gold stands very high with a potential for price corrections, but observers agree that the outlook is very favourable for gold in 2008.
Speculative investment in gold increased substantially in December compared to November 2007 with net length going up by 1,758 contracts month on month. Despite a decline in the first week of January, net length is still high and positive as a result of the scaling up of gold prices, which traded at $914.40 an ounce on the London spot market on 14 January.
In the case of industrial metals, the copper continues to be characterized by a bearish sentiment in the financial market. Finally, the interest rate cut by the US Federal Reserve is likely to encourage the inflow of investment into commodities given their higher relative returns compared to other assets.
Industrial metal prices (copper, aluminum, lead, nickel, zinc, tin) continued to decline in December, falling 10% on a monthly basis. Declines were associated with rising returns and worries about falling world demand. Zinc and nickel were among the metals most affected in the second half of the year and a general decline across the metal sector took place in December relative to the previous month. Aluminum prices plunged 6.5% due to increasing Chinese production growth and net exports of metals, alloy and semi-manufactured products, as well as rising stocks.
Copper prices dropped 8.9% on rising stocks and uncertainties about further slow growth of global demand, especially outside China. Lead prices fell 22% owing to rising inventories and better expectations on the supply side.
Industrial metal prices opened the New Year in a positive way supported by the weaker dollar. However, the outlook for the industrial metal markets over the coming months is mixed depending on the view assumed relative to the role of US demand growth and the impact of an US recession in 2008 and the ability of Chinese demand to balance this situation.