Precious metals in price slump

A slight decline in metal prices in March didn’t prevent Scotiabank’s commodity price index from recording a small gain of 0.8%. Stronger forestry prices and a small gain in energy prices offset declines in the agricultural and metal and mineral indices.

Economist Patricia Mohr reports that a significant dip in precious metal prices and lower nickel prices offset gains in copper, zinc and aluminum. The gold price, which dropped to US$344 per oz. in March, declined to US$336 in late April, a level Mohr says is just above average break-even costs (including depreciation and interest expense) for South African producers. “The decline (in the gold price) reflects limited investor interest due to low inflation in G7 countries — now averaging just over 3% — and weak jewelry demand,” writes Mohr. Buying in India has also slowed. Mohr notes that zinc prices have climbed during the past three months, and in late April sat at US62 cents per lb. Break-even costs in Canada (including depreciation and interest expense) are US52 cents, Mohr says. “Though global supplies of zinc exceed demand, concern over the extent of the surplus has faded,” she writes.

Analysts see demand for zinc increasing in the auto and construction industries in the U.S. and growth in Third World countries is expected to offset declines in German and Japanese zinc consumption this year, she writes. Also, Mohr says supply disruptions could be in the offing this year if there are troubles with contract renewals at smelters in Canada and the U.S.

The all-commodity index tracks export prices of a variety of Canadian commodities, which are weighted according to their 1984 export values, except crude oil where the value of net exports is used.