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August 18, 2008 Dear Friend, Selloffs have been large, and we expect data compiled weeks from now to quantify large investment capital outflows from the metals sectors whether in the forms of ETFs, commodities index funds, specialist investor funds or among generalist managers. Nickel, lead and zinc appear near likely bottom zones as many producers no longer make money at current prices. While "costs" do not support some other prices, year-to-date large drops in copper, nickel and gold mine output suggest even larger future production declines as prices fall. Platinum, silver, chrome, molybdenum and metallurgical coal each offer potential for production rebounds in the second-half, and their output gains in 2008 may be small after output declines in the first-half. Weak output trends due to large deteriorations at some major mines support the future prospects in the long-term metals cycle. We respect and acknowledge the reversal trend in currency markets. Europeans now experience a worse slowdown, and suffer from a tight money policy and strong euro. The EU reported a slight GDP decline, which the U.S. avoided with 1.9% GDP growth in June. We regard the drop in the crude oil price and interest rate moderation as the foundation of a strong demand upturn. Moreover, most metals have seen slower demand, but not negative rates of change. Declines in mine output could create large metals price rebounds on a demand-supply basis if demand recoveries occur. Investors must approach the metals market in expectation of some continuation in the strong dollar trend, and focus on metals with tight inventory and supply fundamentals. We do not reject gold shares, however, owe to the large declines in gold mine output and likely rebound in jewelry demand with gold's price decline. Faithfully, John C. Tumazos |
Copyright © 2008 John Tumazos Very Independent Research,
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