Citigroup: Gold confounds skeptics, nickel, zinc shortages continue unabated
By: Dorothy Kosich
Posted: '13-DEC-06 08:00' GMT © Mineweb 1997-2006
RENO, NV (Mineweb.com) --Citigroup Research analysts Monday declared that the mining/metals sector “is vacillating between bouts of dismal late-cycle gloom, and gleeful soft-landing anticipation for 2007, spiced with M&A.”
Analysts John Hill, Alexander Hacking and Graham Wark termed copper’s defiance above $3 /lb “nothing sort of profound, in our view, considering the speculative exodus, pervasive technical sell signals and steady inventory build. …Certainly, the dollar’s slide has played a supportive short-term role for metals and broader commodities, although the underlying drivers cast questions on growth and physical off take.”
Citigroup’s research has shown that “the tight internal correlations between the metals are breaking down, nickel and zinc seeing unabated shortages, while copper and aluminum have seemingly swapped roles due to supply response and Chinese import/export tax changes. …Gold continues to frustrate the skeptics, and appears well-positioned on a combination of macro and supply/demand factors.”
Hill noted that gold has been resurgent, driven by seasonally stronger fabrication, the end of the central bank selling year, and the prospects for continued dollar weakness. He estimated that the total gold held in the five principal physical gold-backed ETFs as of December 4 was 19.1 million ounces, valued at $12.4 billion. Citigroup gold forecasts for 2007/08 are $700/750 per ounce. Due to the interplay between investment demand and fabrication, Citigroup declared “we would not be surprised to see a test of the old highs of $850 per ounce.”
However, Hill cautioned that a key test for gold “will be whether it can make headway in Euro and Yen terms.”
While other metal prices remain strong and micro-indicators supportive, Citigroup said “we do not expect prices to rise from current spot levels (gold excepted). This sets up a stock-picker’s market in a challenging, cooling environment which would normally be hostile for metals.”
Among the metals and mining companies favored by Citigroup are Freeport McMoRan for copper, and gold miners Newmont Mining and Barrick.
