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Copper, Gold, and Silver Markets

Copper

Chart Comments

Long-term (not shown): From 1998 until late-2003, copper traded between 60 and 90 cents. Prices then took off on a 5-year up-trend, helped by strong growth in China and a falling U.S. dollar. That up-trend ended in late-2008 when the financial crisis hit. After a rapid drop to $1.25, prices appear to have found support again, thanks to buying from China, but the world's economy will take time to heal. Possible resistance at $2.50 or $3.00? (updated 6-22-09).

Daily (below): Copper closed above the 125-day average on March 19th and has traded higher since. Demand from China is said to be strong and other economies are showing improvement also (updated 6-5).

Copper chart

Key Events - Copper

2009
6-22 - China imported 337,230 tons of copper in May, a record high and more than three times a year ago.
6-1 - 3 signs of improvement: Manufacturing index for China shows third consecutive month of expansion. U.S. manufacturing index is 42.8 in May, the highest since September of 2008. U.K. manufacturing index hits 45.4 in May, the highest in a year. Also, GM goes Chapter 11.
5-29 - Japan's industrial production was up 5.2% in April, the biggest monthly gain in 56 years.
5-28 - U.S. durable goods orders up 1.9% in April, much stronger than expected.
5-22 - China's copper imports were up 149% in April from a year ago.
5-8 - China's vehicle sales were up 25% in April.
5-4 - China's manufacturing index confirms first expansion in nine months.
5-1 - U.S. manufacturing index scores 40.1 in May, better than expected.
4-30 - Chrysler goes Chapter 11.
4-22 - China imports record high 296,843 tons of copper in March.
4-3 - Manufacturing index in China shows expansion in March.
4-1 - China's purchasing managers' index shows eight consecutive month of contraction in March.

Fundamental Notes

On June 22, 2009, the International Copper Study Group's (ICSG) preliminary data showed that world copper production outpaced refined usage by 48,000 tons in the first three months of 2009, compared to a production deficit of 67,000 tons the previous year. So far in 2009, world refined production is down almost 2% while refined usage is down 4%. In 2008, world refined production exceeded consumption by 234,000 tons.

On April 21, 2009, the ICSG predicted that copper will show a world production surplus of 345,000 tons in 2009 and 400,000 tons in 2010. World mine production is expected to increase 4% in 2009 and 7.5% in 2010. World refined usage is expected to be down at least 4% in 2009, but increase 6% in 2010.

World Copper Mine Production (million metric tons):
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
12.2 12.7 13.2 13.6 13.6 13.8 14.6 14.9 15.0 15.4e 15.7e 17.4e

Gold

Chart Comments

Long-term (not shown): From 1998 to early-2002, gold prices stayed mostly below $300 per ounce with heavy central bank selling, low inflation, and little interest from investors. That all changed in April of 2002, thanks to 9/11 and a strong trend of consolidation among gold producers. Prices eventually traded their way to $1,000 per ounce by March of 2008 before they got hit with selling in the financial panic of 2008. Prices rebounded in November of 2008, but so far, $1,000 is holding as firm resistance (updated 6-22-09).

Daily (below): Earlier this year, investors bought gold as a safe haven from economic troubles. Now that the economic news has improved somewhat, many have bought gold with expectations for higher inflation ahead. At this point, gold remains above the 125-day average, but also has obvious resistance at $1,000 - I am content to watch (updated 6-25).

Gold chart

Fundamental Notes

In six short years, the tables have turned dramatically for gold. In 2001, the production costs of gold were roughly $160 per ounce as prices dipped to $270. Then in early-2008, production costs rose to $400 to $500 an ounce as prices briefly hit $1,000. Much of the credit for gold's rise can go to the consolidation that has taken place in the mining industry. This activity led to more disciplined production decisions while the U.S. economy and dollar stumbled.

The heaviest burden on gold prices typically comes from central bank sales. In September of 2004, a new five-year agreement limited sales to 500 tons per year. However, bank sales did not reach their limit in 2008 and some are guessing that banks are no longer eager to sell their gold. On April 8, 2008, the International Monetary Fund let it be known that it may sell 13 million ounces of gold over several years to raise cash.

On May 20, 2009, the World Gold Council said that world gold demand was up 38% in the first quarter of 2009 from a year ago, thanks to big jump in investment demand. On November 21, 2008, an analyst was quoted by Bloomberg news as saying that world gold production will be down 3% in 2008 and down 5% in 2009. However, on March 3, 2009, Australia's Bureau of Agricultural and Resource Economics said that they expect world gold production will be up 3% in 2009. In late-2008, there was talk that the financial panic led to a shrinking supply of gold coins.

World Gold Mine Production (million troy ounces):
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
79.1 81.7 83.1 84.3 83.3 83.4 79.4 81.9 79.9e 79.6e 77.9e

Silver

Long-term (not shown): From 1989 to 2003, silver traded mostly between $4 and $6 per ounce until taking off on a big up-trend for almost five years. Post-9/11 was a good era for most commodities and silver did very well up until the financial panic of late-2008. Prices found support around $9 in late-2008 and may have found resistance at $16 recently (updated 6-22-09).

Daily (below): Silver prices have stayed above the 125-day average since January 23rd and that is impressive, but the sell-off on June 12th is suspicious. On June 22nd, prices posted their lowest close in six weeks - not a good sign (updated 6-22).

Silver chart

Fundamental Notes

Until prices exploded higher in late-2003, it was hard to find anything positive to say about silver. The main changes have been the consolidation that has taken place in the gold and copper industries and the difficulty in developing new sources of production. As much as 75% of silver's production comes from gold, copper, lead, and zinc mining which is why changes in these other industries have a large impact on the price of silver. On the demand side, silver (like most commodities) benefits from strong world growth and a weaker U.S. dollar. According to an article in Barron's on June 8, 2009, the cash cost of producing silver is somewhere around $4.50 to $5.30 an ounce, but that rises to as much as $12 per ounce if exploration costs are included.

Fundamental data is hard to come by for the silver market, but the Silver Institute said that world mine production totalled 671 million ounces in 2007, up almost 4% from the previous year. 2007 fabrication demand totalled 844 million ounces, up 1% from the previous year.

World Silver Mine Production (million ounces):
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
542 557 591 606 594 601 621 644e 647e 671e

Ounces per ton?

Reading about precious metals is sometimes confusing because one source speaks in terms of troy ounces and another uses metric tons. There are 32,150.7 troy ounces in each metric ton.

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