Metals are a significant part of the commodity segment. They can be divided into many sub-categories such as core segment, industrial segment and precious metals. The investment outlook for metals depends on various macro and microeconomic factors and there has been a lot of volatility in the prices of metals over the last few months.
These are some of the major factors that are expected to drive the prices of metals in the short to medium terms:
Gold
The price of gold has gone up quite significantly over the last couple of years. The investment outlook for gold is still quite bullish. The strong demand due to various factors is behind the bullish sentiment. One of the main triggers is gold's character of being a safe haven.
The demand for gold rises exponentially whenever there is any geo-political turbulence. The continued soft monetary policy in developed countries and the currency risks are other major drivers of the prices of gold in the global markets. Another significant factor is the shortage in supplies which have not been able to keep pace with the rising demand, especially from India and China.
Silver
The story of silver is similar to gold's. The price escalation in silver has been much sharper in the recent times. This is because silver comes in the purviews of precious as well as industrial metals. The precious metals category generates investment-led demand and the industrial metals category generates consumption-led demand from various industries.
Therefore, the major factors that impact the price of silver are quite different from those that impact the price of gold. The uptrend in the developed economies resulted in the higher demand and price volatility in silver. The outlook is bullish for silver but since it has gone up quite significantly over the last few weeks, you can expect some correction in the near term.
Copper
The price of copper has gone up over the last few weeks mainly due to a weak dollar against the Euro, and expectations of higher demand from China. The demand expectation from China is one of the major factors driving the price of copper.
Investors with interests in copper should track the price movements of the US dollar and the demand environment in China. A monetary policy tightening in China will influence the investor sentiment adversely with respect to copper.
Aluminium
The price of aluminium is up due to the strong rise in energy prices, as energy accounts for a major cost in the production of aluminium. Value buying by large investors is another factor that is driving the price of aluminium as they look at balancing their portfolios with respect to other industrial metals.
Steel
Steel is one of the core metal commodities, and its demand and pricing pretty much reflect the world's economic sustainability and recovery. China has been the single-largest producer and consumer of steel over the last few years. In China, the government's liberal monetary policy, easy availability of credit and construction activity has driven the demand for steel so far.
However, China is trying to tackle its over-heating property sector and the demand is expected to soften in the short to medium terms. Analysts believe the demand from other emerging nations and improving developed nations is expected to fill this demand gap, going forward.
However, the uncertain outlook in China, coupled with a still tentative recovery in the developed world, is expected to keep the sentiment nervous.
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