Like most commodities, copper got hit hard the week of St. Patrick's day, but they were able to stay above the 6-month moving average and made their way back to the old highs. $4.00 a pound is steep and I am reluctant to buy up here (not that it can't go higher) as producers have plenty of incentive to increase production (updated 5-7).

Fundamental Stats -

Strong Asian demand continues to dominate the copper market. On March 27, 2008, the International Copper Study Group (ICSG) said that its preliminary data showed that world copper production fell short of consumption by 42,000 tons in 2007. World mine production was up 3% in 2007 while total usage was up 7%. The big increases in usage came from China, Africa, and Oceania. On October 1, 2007, the ICSG reduced its estimate of a 2008 world production surplus was reduced from 527,000 tons to 249,000 tons.

For all of 2006, the ICSG said that world copper production exceeded consumption by 287,000 tons in all of 2006, a fairly dramatic increase from the 131,000 ton production deficit in 2005. London inventories of copper started 2007 at 182,800 tons and ended the year at 197,450 tons.

The strong uptrend in August gold peaked on March 17th and prices have fallen off since then, but not too harshly. The latest bounce at $850 may be a sign of support and, given the industry's difficulty in finding new production, this may be a decent area to buy (updated 5-7).

Fundamental Stats -

In six short years, the tables have turned for gold. In 2001, the production costs of gold totaled roughly $160 per ounce as prices dipped to $270. Then in 2007, production costs rose to $400 to $500 an ounce and prices are much higher. Just as the outlook for gold was too gloomy in 2001, it is now probably too rosy in 2008. Much of the credit for gold's rise in the past six years can go to the consolidation that has taken place in the mining industry. In early 2002, Newmont Mining won the right to buy Normandy Mining of Australia for $4.56 billion in cash and stock, becoming the world's largest gold producer. On August 5, 2003, the world's second largest producer, AngloGold Ltd., bought Ashanti Goldfields for $1.09 billion. In 2001, Barrick Gold bought Homestake Mining to become the world's third largest gold mining company and then on October 31, 2005, announced its bid for Placer Dome, the world's fifth largest gold producer. This activity led to more disciplined production decisions at a time when the U.S. economy and the dollar stumbled.

The heaviest burden on gold typically comes from central bank sales. In September of 2004, a new five-year agreement limited sales to 500 tons per year. Potential sellers are Germany, France, Switzerland, Spain, and possibly Italy. On June 14, 2007, the Swiss National Bank said that it will sell 250 tons of gold over the next two years. On April 8, 2008, the International Monetary Fund let it be known that it may sell 13 million ounce of gold over several years to raise cash.

On April 9, 2008, GFMS Ltd. said that they expect the price of gold to reach new highs in 2008. They also said that world mine production was down .4% in 2007 to the lowest in eleven years and for the first time South Africa was not the largest producer - China was. GFMS Ltd. expects the same level of world production in 2008. On November 15, 2007, the World Gold Council said that world gold demand was up 19% in the third quarter from a year ago, due to investors seeking a safe haven from the subprime mortgage mess.

The strong uptrend in July silver peaked on St. Patrick's day and then broke sharply lower with most other commodities. Since then, prices have chopped around and appear to have found support at $16 (updated 5-7).

Fundamental Stats -

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) is benefitting from stronger world growth (especially Asia) and concerns about a falling U.S. dollar.

Fundamental data is hard to come by for the silver market, but the Silver Institute said that world mine production totalled 646 million ounces in 2006, up slightly from the previous year. 2006 fabrication demand totalled 840 million ounces, down 1% from the previous year. Overall, fabrication demand has held up well in spite of higher prices.