For Industrial Metals The Future Looks Bright
Aa
Share
Gold and silver as financial security assets: which offers better security?
A weakening dollar means that gold may potentially outperform other major assets in the near term, but silver offers an even better currency hedge in relative terms. The two metals are traded on the same venues, provide the same broad sweep of derivative products, and are exposed to the same financial drivers. Their correlation is about 0.8 over any time frame someone would like to test. However, someone might need to allocate more of their portfolio to gold to gain the same amount of exposure. With a beta of 1.6, silver tends to echo and amplify the swings in gold, meaning about a third less cash is needed to gain the same exposure.
For industrial metals, the future looks bright given China abandoning the „zero Covid” policy suite that has pressured the economy for so long and their support for the housing market. However, 2023 may also be gloomy when you consider the anticipated global recession. Assuming the recession would be moderate, industrial metals may be a good place for some exposure in 2023.
More precisely, copper is traded at around 8,536 USD per metric ton on the London Metal Exchange, up about a fifth from the lows of July this year, according to FactSet. Aluminium prices on the LME are also up about a fifth from their late September lows. Citi says that copper supply now possibly exceeds demand and that aluminium shifted into surplus during the third quarter.
The bank expects further economic weakness, as well as seasonal weakness, to limit the further increases in metal pricesand states that metals such as copper are pricing in a major near-term recovery in demand growth, which might not happen.
Read next: USD/JPY Pair Is Trading At 128.48 The Aussie Pair Is Above 0.71$| FXMAG.COM
In 2022, we saw a divergence between the price of an ounce of silver in futures form and an ounce of silver in American Eagle coin form that had not been seen for at least a decade. One and the other market priced the same ounce of silver, with the coins usually only slightly higher in value than the futures. By contrast, the divergence now appears to be huge, reaching tens of percent. At the beginning of December 2022, a popular silver coin cost around 36 USD. The futures contract for an ounce of silver cost 22-23 USD, creating a divergence of nearly 50-60%. This divergence should ease as the prices of both assets begin to reverse their historical relationship.
Good to watch commodities
- XBRUSD/XTIUSD
Price of the crude oil may manifest an upward trend due to the demand from China and possible further production cuts by the OPEC cartel.
- XAGUSD
The emerging divergence between physical coin prices and futures prices due to shortages of this commodity in circulation does not seem possible to last forever. Therefore, there may be an upside in the futures market for silver.
- XAUUSD
The gold price may be expected to be in a positive territory in the near term due to the weakening of the US Dollar and investors’ preference of less risky assets.
- XPTUSD
As with the oil market, the situation in China could have a major impact on its valuation in 2023. However, assuming the abolition of the „zero Covid” policy by the Chinese government and the support of the property market, we could expect a rise in this commodity.
