Metals Report Perilous predictions for 1987

Every year at about this time senior officials at mining companies across the country summon underlings to their executive suites for private consultations.

What is the subject of the high level huddling? Strategies for dealing with growing foreign competition? Discussions of leaked government policies? New mineral discoveries?

No, the subject of these secret meetings are more important — the annual office lottery on where metal prices will be a year hence.

Predictions by laymen are often based on throwing a dart at a list of prices. Not so among the multinational corporations. First, elaborate computer programs are run and statistical analyses completed — then a dart is thrown at a list of prices.

Normal folk will bet on hockey scores, football spreads or random numbers a la Lotto 6-49. Only in the mining industry will you see office staff voting on what the price of gold will be a year from now — probably with far less chance of success.

But bet they do, and substantial wagers, too.

The Northern Miner is no different (except, perhaps, for the more modest sums at stake). Each year we have our own pool and invariably the editors and analysts who have been in the business for years lose out — usually to the teenager hired last week by the mailing department.

As the deadline for the lottery nears, tempers flare.

“How the —- should I know what the price of zinc is going to be a year from now,” growls the harried metals editor as supplicants file past his desk seeking some insight into one of the great mysteries of the universe — how the free market works and how it will affect metal prices in 1987.

The secretary in circulation who won last year’s modest fortune answers demurely to those who turn to her for advice: “Do you want the LME price in pence per tonne or American dollars per pound, or perhaps the New York spot price translated into Canadian currency at mid-market exchange rates, or the producer price in sterling, or …”

Forget it. We’ll go with our instincts.

Although these predictions were formulated by means most scientific and in the strictest confidence, I am willing to pass along the culmination of years of study to you, our faithful readers, for the price of the newspaper. Here are my picks for metal prices at the end of 1987.

But please don’t remind me of them 12 months from now — unless I’m right.

Gold is struggling to get its head back above the $400-per-oz level, but in 1987 it should float to an average of about $420, reflecting a lower U.S. dollar and slightly higher inflation rates in the U.S. The 4-year bull market for stocks will also come to an end resulting in more money channelling into precious metals, further bolstering the price. Acting as a damper on gold prices, however, will be increased Russian selling, a subsiding of buyi ng from Japan and increased production worldwide. A year from now it will be at the higher end of the 1987 range — $430.

Platinum will continue to be the most volatile of the precious metals in 1987, and picking a price for it is probably the most obvious exercise in futility. Nevertheless, my fearless prediction for the end of 1987 will see platinum below the 1985 peak but considerably higher than current prices at $585 per oz. Increased industrial demand is the fundamental that will drive this metal’s price for the next few years, but speculation about supply disruptions — unfounded barring an outright civil war in South Africa — will fuel price swings that will tend to the upside.

Silver may surprise some in 1987, but although mildly bullish on the outlook for “the poor man’s gold,” I’m not willing to go out too far on a limb. It will outperform gold in percentage terms as it makes up some lost ground in the oft-quoted gold-silver price ratio, but chronic oversupply will keep silver from moving back to the historical 45-to-1 ratio. A shift to precious metals will also help silver. Our crystal ball shows silver ending the year at about $6.10.

Zinc prices will firm, but they won’t rise dramatically. Producers won’t let them get too high lest they lose markets to substitutes. Increased supply will put downward pressure on zinc prices and Teck Corp.’s management will result in Cominco taking a more aggressive position in world zinc markets. Over-all, though, industrial activity in the U.S. will improve and will not decline in Western Europe or Japan, resulting in greater demand for zinc. The verdict is 42 cents a pound a year from now.

Copper, too, will benefit from increased industrial growth, but the tremendous unused capacity ready to come onstream as soon as prices firm will hold back copper from major gains. Nonetheless, I feel copper’s day will come soon. It should be in the 70 cents -75 cents range, but my prediction for the end of 1987 is a modest increase to 64 cents — copper prices have just been disappointing too many times in the past.

Lead, like silver, will surprise a few observers in 1987. The reason? Environmental concerns over recycling lead, a major source of lead, will continue to grow putting upward pressure on primary lead prices. Lead’s limited market will continue to decline in 1987, but not dramatically. The price will improve slightly, ending the year at 23 cents per pound.