Welcome to CrushTheStreet.com’s Weekly Market Wrap-Up!
This week’s top story is the changing patterns within the commodities market, specifically, supply constraint worries for the industrial metal zinc. According to a recent report from the Wall Street Journal, global supply for zinc is shrinking, sending investors scrambling to buy up shares of mining companies and forcing the U.S. Mint to redouble its cost-cutting efforts in search of a cheaper penny.
Zinc has been the primary metal used to produce the one-cent coin since 1982, with a thin layer of copper applied to the core to give the physical impression of a copper coin. Multiple thousands of tons of zinc are used annually to produce the penny, although rising prices will obviously put a damper on the economic viability of distributing physical coins with a face-value lower than its metal content.
The debate regarding the rationale of having such a dilemma in the first place is not new, with the least valued American currency often being lost to well-wishing fountains and the orifice of living room seat cushions. However, such arguments deflect from the greater theme of global monetary policies ramping up costs for utilitarian commodities and that this condition may worsen before a reasonable solution can be found.
According to a Reuters report back in July of this year, zinc’s spot-price was already on a positive trajectory following extended buying on forecasts of shortages of the metal due to mine closures and as a proxy for recovering global growth. Three-month zinc contracts were July’s strongest performer on the London Metal Exchange, climbing to over 2,300 dollars a ton. Also, options activity suggest a risk-off sentiment for the base metals complex, with both zinc and nickel contracts pricing in lower risk assumptions.
Investors are Buying into the Trend
Recently, more investors are buying into the trend, with the aforementioned pair likely to lead advances in base metals next year as global demand outstrips production, according to Paul Crone, chief investment officer at Citrine Capital Management LLC. He expects zinc to rally between 2,500 to 2,700 dollars next year, which would represent a possible 16% increase over its 3-year high of 2,318. Nickel is forecasted to rise 23-percent to 23,000-dollars as a ban on Indonesia’s raw ore exporting will constrain supply.
With the fundamentals seemingly in favor of a broad-based commodities rally, would now be a time to engage the base metals? The one point of caution is that supply constraint itself does not necessarily drive long-term market action, with the near-term volatility in the silver market indicative of outside price influence that can often run contrary to economic imbalances. For the base metals specifically, the proxy that they represent towards the speculation of global fiscal stability is indeed worrisome: a sudden shift in sentiment combined with real-time fissures in the financial and labor markets, could send both equity and base metal prices tumbling.
In the financial sector, the equities market slowed down on Thursday following relatively strong gains from the first half of the week. The Dow Jones closed up at 17,264 points, while the benchmark S&P 500 ended the session at 2,011 points, up nearly half-a-percent from the prior session.
The precious metals complex added modest gains following a devastatingly volatile series of trades, with gold closing at 1,227 and silver finishing the session at 18.66. Palladium has suffered heavily for month of September, dropping nearly 9% of valuation since peaking at 910 dollars. The last session saw the industrial metal move down to 830 on the ask.
On the digital currency front, bitcoin fell under heavy pressure earlier in the week, falling down to one-month lows before the price stabilized at 420 from bargain-hunting buyers.
And that will do it for this edition. Thanks for watching and we’ll see you next week!