Welcome to CrushTheStreet.com's Weekly Market
Wrap-up!
This week's top story is the changing patterns
within the commodities market, specifically,
supply constraint worries for the industrial
metal zinc.
According to a recent report from the Wall
Street Journal, global supply for zinc is
shrinking, sending investors scrambling to
buy up shares of mining companies and forcing
the U.S. Mint to redouble its cost-cutting
efforts in search of a cheaper penny.
Zinc has been the primary metal used to produce
the one-cent coin since 1982, with a thin
layer of copper applied to the core to give
the physical impression of a copper coin.
Multiple thousands of tons of zinc are used
annually to produce the penny, although rising
prices will obviously put a damper on the
economic viability of distributing physical
coins with a face-value lower than its metal
content.
The debate regarding the rationale of having
such a dilemma in the first place is not new,
with the least valued American currency often
being lost to well-wishing fountains and the
orifice of living room seat cushions.
However, such arguments deflect from the greater
theme of global monetary policies ramping
up costs for utilitarian commodities and that
this condition may worsen before a reasonable
solution can be found.
According to a Reuters report back in July
of this year, zinc's spot-price was already
on a positive trajectory following extended
buying on forecasts of shortages of the metal
due to mine closures and as a proxy for recovering
global growth.
Three-month zinc contracts were July's strongest
performer on the London Metal Exchange, climbing
to over 2,300 dollars a ton.
Also, options activity suggest a risk-off
sentiment for the base metals complex, with
both zinc and nickel contracts pricing in
lower risk assumptions.
Recently, more investors are buying into the
trend, with the aforementioned pair likely
to lead advances in base metals next year
as global demand outstrips production, according
to Paul Crone, chief investment officer at
Citrine Capital Management LLC.
He expects zinc to rally between 2,500 to
2,700 dollars next year, which would represent
a possible 16% increase over its 3-year high
of 2,318.
Nickel is forecasted to rise 23-percent to
23,000-dollars as a ban on Indonesia's raw
ore exporting will constrain supply.
With the fundamentals seemingly in favor of
a broad-based commodities rally, would now
be a time to engage the base metals?
The one point of caution is that supply constraint
itself does not necessarily drive long-term
market action, with the near-term volatility
in the silver market indicative of outside
price influence that can often run contrary
to economic imbalances.
For the base metals specifically, the proxy
that they represent towards the speculation
of global fiscal stability is indeed worrisome:
a sudden shift in sentiment combined with
real-time fissures in the financial and labor
markets, could send both equity and base metal
prices tumbling.
In the financial sector, the equities market
slowed down on Thursday following relatively
strong gains from the first half of the week.
The Dow Jones closed up at 17,264 points,
while the benchmark S&P 500 ended the session
at 2,011 points, up nearly half-a-percent
from the prior session.
The precious metals complex added modest gains
following a devastatingly volatile series
of trades, with gold closing at 1,227 and
silver finishing the session at 18.66.
Palladium has suffered heavily for month of
September, dropping nearly 9% of valuation
since peaking at 910 dollars.
The last session saw the industrial metal
move down to 830 on the ask.
On the digital currency front, bitcoin fell
under heavy pressure earlier in the week,
falling down to one-month lows before the
price stabilized at 420 from bargain-hunting
buyers.
