Financial Collapse Predicts Demand Decline, Base Metals Plunge
Sep 16th, 2008 | By Doug Casey | Category: Financial News, Gold MarketThe base metals gave back all of Friday’s gains on Monday. Copper fell through the pre-dawn hours to just before the New York open, bottoming at $3.10, but rallied from there to cut its losses and finish at $3.1579/lb., down 8 cents. Nickel followed the same path, but didn’t recover as much, closing at $8.207/lb., down 47 2/3 cents.
Zinc plunged to $0.76 before edging back to end at $0.7874/lb., down 5 cents. Aluminum recovered not at all from its pre-dawn skid, dropping 4 cents to $1.1443/lb., while lead was also hammered for a 4 cent loss, to $0.8284/lb.
Copper led all of the industrial metals lower as the turmoil in financial markets drove traders from anything tied to economic growth.
“It’s going to be unpredictable, erratic and choppy,” said analyst Robin Bhar of Calyon, looking forward. “(It is) a shock to have two banks literally disappear …The uncertainty will linger, and while that’s happening, people will back away from doing too much.”
“We have a double problem here,” noted Sean Corrigan, Chief Investment Strategist at Diapason Commodities Management, as he surveyed the shifting landscape. “Number One, how much worse does this financial crisis potentially compound the problem of a sliding world economy? There will be worries about that for commodities in terms of end use.”
Furthermore, “We don’t know who is having to cut positions, deleverage and make margin calls. This is the second reason why these things might suffer in the short term,” Corrigan said.
In London, the LME said it had declared Lehman Brothers a defaulter and suspended it from trading on its Select electronic trading system. However, traders did not expect any sizeable implosion from the unwinding of Lehman’s positions, since the bank has not been a major player in the base metals market.
Not so with Merrill Lynch (MER). Although its rescuer, Bank of America (BAC), has little presence in the commodities markets, the broker itself is deep in.
”The potential for some significant change there is quite dramatic,” said one LME floor trader said. “If BofA decide they don’t want to be in there at all – and they have already made that decision once – then [Merrill’s] metals book, which is quite a complicated big book … will take some significant amount of unwinding.”
Source: Base metals plunge - Financial collapse augurs demand decline.
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Doug Casey is a contrarian investor, sought-after public speaker and author of several books. His work "Crisis Investing" held the position of # 1 bestseller on the New York Times list for 26 consecutive weeks. Doug's unusual views on the economy - and just about everything else - have gained a huge following in the investment community, and it certainly helps that his stock recommendations of undervalued junior exploration companies have made his subscribers millions. Now in its 27th year, Doug's monthly newsletter, the International Speculator, is one of the most established and esteemed publications on gold, silver and other natural resource investments. Together with the Casey Energy Speculator, it covers a broad range of carefully selected stocks with the very real potential of double- and triple-digit returns within 12 to 24 months.