Gold faces resistance at $1000/oz

Gold today is facing resistance at $1000/oz. It reached a high of $998/oz before retracing to $989.20/oz. This is of course just the daily action, and there does remain the prospect of gold breaking this level yet. This has proven to be a strong level of resistance for gold. In fact, we can see weakness to the $750/oz support level.

Gold has attempted to break this level on three occasions - July 14th 2008 and Feb 12th, June 1st and now Sept 3rd in 2009.

One might well ask if gold is likely to break this resistance given the recent expansion in the monetary base. Certainly this is a bullish factor, though without signs of inflation, and the possibility of higher interest rates, I would be expecting weakness in gold before we see further strength. Of course we need not guess these things. we need only watch the market to give us the lead.
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Andrew Sheldon www.sheldonthinks.com

Gold price outlook

The gold price has shown some strength of late - rising $27/oz and $15/oz in the last two days respectively. It is questionable whether gold will break its previous resistance at this point. I am inclined to think that it will not, and that the gold price will once again settle back. These rallies of course make great opportunities to trade. Our view is that the support for gold is the $750/oz mark, though I see nothing which is likely to push gold that low, except perhaps a recognition that the economy is too hot, and the Fed needs to raise interest rates. This will likely occur within the next year. Of course it will never raise rates by the amounts required to rein in inflation; at least not until the dying moments when it has no choice. By this point, based on the following chart, we are expecting gold to reach a level of at least $US2200/oz. Of course this is an evolving story.
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Andrew Sheldon www.sheldonthinks.com

Silver prices close to support

Silver prices have pulled back considerably of late. The $13.75/oz level will likely prove to be support, and provides a good entry point. I would wait for support though since there is downside to $12.95/oz.
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Andrew Sheldon www.sheldonthinks.com

Gold prices poised

It is apparent from the chart that gold prices have fallen back to a support level. If this level holds as I expect it will, then gold will be testing its previous high of $986/oz. I have been very cautious about gold because of the swine flu risk raised the prospect of deflation, which could not be addressed by government pumping more money into the economy. With swine flu concerns declining, I think we are going to see continued recapitalisation of the financial sector, which will mean more paper money floating around or higher interest rates. It remains to be seen how Obama deals with US government finances. My expectation is that the government will seek to raise energy taxes. Higher interest rates are inevitable now.

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Andrew Sheldon www.sheldonthinks.com

Gold outlook in question

The gold price is holding reasonably well at the moment. The metal found support at $890/oz. I do however believe that there is the prospect of gold falling back to $$700-750/oz, though by no means is it probable.
The positive for gold is the extent to which central banks are relying on fiat currency to support their economies. One could be forgiven for thinking that we are over the bad news, but in fact the USA is entering a period of ARM re-sets. Clearly low interest rates will help people survive this period. Another factor likely to support commodity countries like Australia, Canada, is the prospect of China buying up commodities. This of course will make any recession shallower, but it will also make it longer. One would want to retain some exposure to gold, though at this point I would only make that exposure emerging stocks with resource upside, rather than the gold producers trading as a yield proposition. For metal traders, I'd be looking for confirmation of trend before I enter the market, as there is grounds for some rapid moves.
We might yet see gold test its previous high of $990/oz, though I see more consolidation for now, with the prospect of a fall back to $750/oz. I would rank the swine flu as an issue, though of course its hard to say whether this will evolve into something more serious. It would seem inevitable that there will be a breakout as long as developing countries have dodgy animal husbandry standards. A major pandemic would spell a much deeper recession, and a run on banks. I think this would be a negative for gold because its not inflationary, but just a crisis of confidence which will undermine consumer spending. It will briefly cause the market to spike as people buy more food, and we might see some evidence of that in the current quarter. A pandemic is more an issue of perceptions since we need only hide in our houses for a week. But will we all be so compliant and organised. It remains to be seen if this will be a momumental blunder.

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Andrew Sheldon www.sheldonthinks.com

Gold prices poised for a fall

The gold price is poised for a significant fall in coming months after a rally to $1000/oz. The attached chart shows that the metal is on the verge of a wedge break either up or down, and given the strength of equities and new-found market liquidity, I would expect weaker gold for the short-medium term. All of this liquidity will end up being inflationary of course, and I'm sure the various government treasuries around the world have not finished their spending spree.
I can see gold falling to a low of $US700/oz. That fall will like take about 2 months before we see signs of recovery. This will hit gold stocks very hard I think, particularly those struggling with project finance or equity raisings, so I would be looking at opportunities among these stocks in particular. Perseus Mining would be one I would be particularly interested in.

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Andrew Sheldon www.sheldonthinks.com

Gold support at $US880/oz

Gold has come under short term selling pressure over the last few days, breaking support. Given the weakness in the broader market, and the lack of apparent inflationary pressures, we would expect gold to build new support around the $US880/oz level before moving higher. Entry at the current level of $US915 is fraught with downside.
Importantly gold has broken the previous highs set back in Oct 2008, so its worth holding existing positions, or adding to them on weakness for all but the more aggressive traders.

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Andrew Sheldon www.sheldonthinks.com

Gold poised for another rally over $1000/oz

Now could be another good time to make gold investments. The gold price has retraced $60/oz over the last week to $US950/oz, and is poised for a move higher. We can see in this chart that the gold price has consolidated at the current level.
The monthly chart confirms also suggests that the gold price is going higher, though we might like more confidence from thew US market overnight. I am confident.

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Andrew Sheldon www.sheldonthinks.com

Gold oil ratio signals stronger gold

It is apparent that another important ratio we look at to determine fair value for gold is the gold-oil ratio. Its particularly interesting to look at this ratio because the oil price has collapsed in recent months, falling from $140/barrel to $40/barrel. The result has been a rise in the gold-oil ratio from 7 to 28. In recent weeks the gold-oil ratio has recovered to 21, as oil prices rose.
Its apparent that the first rally in the gold-oil ratio (measured on the right negative axis) was caused by the fall in oil prices. Having recovered to 21, I believe the next rally in the ratio to 28 will be in the midst of rising oil prices and gold prices. I would contend that the rise in oil prices will be caused by inflation and a weak USD. One might also attribute cuts in OPEC oil production as a cause however this is transitory since OPEC is going to lag in production cuts only for as long as such adjustments prove necessary.

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Andrew Sheldon www.sheldonthinks.com

Gold destined for $US2000/oz

Some time ago I suggested that gold was destined to rise to $1400/oz price level. In fact based on current movements in the Dow, I would suggest we are likely to see the gold price rise as high as $US2,000/oz. The basis for this forecast is an important measure of relative price value - the Dow gold ratio. Just as you have price-earnings ratios for stocks and housing affordability indices for property, there are ratios for commodities as well; and they are very bullish for gold.
There are several ways you can trade gold. You can buy gold stocks - blue chips or the juniors, or you can buy the metal from the Perth Mint, or a derivatives such as options, futures or contracts for difference. If you have less confidence in the financial viability of financial institutions, then you would avoid derivatives because you will bear the counter-party risk if the counter-party fails. No one talks about these risks. Its just assumed that counter-parties are of good standing. Don't think that rising asset prices will protect you from that risk.
I have extrapolated the charts above. You can see that to get to a Dow-gold ratio of 4 (the historical low) we need to see gold reach $2,000/oz. That is based on a Dow Jones index of 8,000, and we are just above that now. We have this week been given the signal to buy gold exposure because gold appears to be holding above $900/oz. Another solid rise should see it continue higher.

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Andrew Sheldon www.sheldonthinks.com

Dow-gold ratio is quickly moving towards target

The gold price moved over $906/oz again in Monday's trading, giving more credence to the belief that gold is going to rally. Its rather timely that this is happening when bank (broad equities) are reaching an important support level. The Dow-gold ratio is currently 8.91, still well short of the ratio of 4-5 which we would associate with fully priced gold. You might wonder why gold should be fully priced when no other asset class is? The reason is that when its rallying its the only asset class people will have confidence in. Everyone likes a bargain. At this point gold is cheap, and it will remain cheap until it gets dumped.

I expect equities to rally soon. Its the new year, and stocks generally rally at this point, and more importantly stocks have fallen to an important support level. The rally in equities will likely offer good profit potential, but nothing like gold. Already gold equities have been strong for some time now. If you want to know how to pick gold equities - I will refer you to here. As indicated about 6 months ago, based on the expectation of a rally in the Dow to between 8,500-10,000, the gold price could rise as high as $2125-2500/oz. The rise will partly reflect weakness in the USD, but it will also reflect real price gains for gold, so you will benefit in any currency.
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Andrew Sheldon www.sheldonthinks.com

West Texas Intermediate price likely to rally

The West Texas Intermediate crude price shows every sign of having bottomed, so could be considered as offering good buying up to $50, which could be considered a resistance (sell) point in the short-medium term. The slow down in the global economy has placed oil under pressure, and you can expect OPEC to drag the change with respect to any steps to reduce demand. It is for this reason you can expect oil prices to be oversold. OPEC cuts in production will eventually catch up, and you can expect a rebalancing of supply and demand. Don't expect oil prices to fall back to $9/barrel, as we are in very different times. The factors pertinent to today are:
1. Improved policy under Obama
2. Global weakness matched by cuts in OPEN supply
3. Rising inflation
There will likely be consolidation in oil prices in a lower range between $40-50/bbl, and I would expect some good trading opportunities in this range.





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Andrew Sheldon www.sheldonthinks.com

Gold rallied overnight in the US to $903.60/oz, a 4-month high. The 5% rise of $43/oz was attributed to expectations of a weaker than expected outlook for the global economy and volatile currencies. This is an interesting rationalisation by fundamentalists, but really it reflects no more than technical trading. Basically funds think its a good time to get into gold and they are buying within zones of weakness, and riding the rallies.
As we can see from the chart, gold fell to near $800/oz, so funds started jumping in. It is interesting that gold rallied to $900/oz, but did not break it convincingly. The implication is that gold traders are waiting until Monday to see which way the markets will go. Clearly they will be looking for a lead from the rest of the market. Expect some volatility in gold in coming weeks. Clearly moves of 5% are attractive for traders because gold is a pretty liquid market.
The fact that gold closed below $900/oz at $897/oz is a weak indicator, but the fact that it closed just $5/oz from its high could be considered a sign of strength. One need only compare the current chart with Sept 2008, where the gold rally was quickly sold into over $900/oz. The current strength suggests gold is going higher, though it might not happen for a few days. We need to look for direction from the market. Likely the market will find a lead from the Dow on Monday.
So what about the rationalisations of the gold fundamentalists? Well they are not wrong. Weaker global markets means less growth, reduced tax receipts, subdued earnings, greater welfare spending, tax increases and of course more government debt, and even printing of money at some point for those countries with weak credit ratings. This package of problems of course results in greater inflation since it implies more money and less economic activity.
The markets are not yet suggesting to me a breakout, though we are coming close to that point. Gold has risen to a point where it is making new highs, so that is a bullish sign, though in the short term, gold can still come off, and it might just do that. In these times of weakness its a good idea to buy.

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Andrew Sheldon www.sheldonthinks.com

LME commodities likely to rally - except copper

LME traded metals rallied of late, but looking at historical data I am inclined to think its a short term rally which will be quickly exhausted. Copper and nickel are the far more liquid markets. It would be imprudent to trade it until it forms a new support, whether at the current $3,000 level, or the stronger support at $2,000/tonne. After all, the other metals have fallen to historic levels, and the notion that copper fundamentals are better might just prove to shallow to hold markets.

I tend to think that all the other commodities have reached their lows, and so in the New Year rally, they will present good trading opportunities, particularly as I would expect them to be supported by a weaker USD. I will demonstrate as much on my forex blog.
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Andrew Sheldon www.sheldonthinks.com

Lacklustre outlook for gold in the New Year'09

Gold prices have rallied to $885/oz in recent weeks. This is a traders market, so I would be taking profits. The New Year is often a time when the market rallies. I would be expecting a swift kick in the balls anytime soon. there is no basis for a recovery in the metal complex. Even gold prices are not likely to rally just yet. I don't see them taking off until inflation is more prevalent. Market sentiment might be generally stronger though after Xmas, but I would tend to favour the broader market than metals. Gold prices can be expected to fall back to $700/oz. Still that still makes for good earnings for gold prices in Australia, but I would not expect much support just yet.

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Andrew Sheldon www.sheldonthinks.com

Hitler gets a margin call

Sorry all, busy buying a house in NZ. In the interim check this out.

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Andrew Sheldon www.sheldonthinks.com

Oil prices appear fallen back to almost $60/barrel, which is support based on the long term uptrend that started life in early 1999. Since that time oil prices rose 1400%. Having gone from oversold to overbought, you might wonder whether they are going back to oversold. Well I would suggest they are, but not in any currency measure you will fathom. The goal posts will keep shifting.

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Andrew Sheldon www.sheldonthinks.com

Gold-oil ratio suggests gold prices going to double

Another historic indicator of gold and oil prices is the gold-oil ratio. Basically this ratio measures the amount of gold that one could buy with a barrel of oil, or vice versa.
We can see that the ratio is currently 10, though in the past its been on a trend which would see it valued at 20 at least. This chart is interesting because it poses more questions than it answers. Note that it extends back 170 years, back to the time when they started producing oil. If we accept that the ratio is going to 20 (and that is conservative), then we are looking at oil prices of $30/barrel or gold prices of around $1500/oz. Of course there could be some comprise on both commodities, or the central banks can play with their funny money more, so that in nominal terms both commodities rise. It will not change anything, gold will out-perform energy by a factor of 2:1 for this trend to stay true. I don't see oil prices weakening any further, but I will take a look at oil prices to convince myself.

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Andrew Sheldon www.sheldonthinks.com

Latest gold price outlook - Oct 2008

This is my latest revised price forecast for the gold price in $US terms based on the historically important Dow-gold price ratio. This index has a history extending back 110 years, and it shows a nice correlation with the Dow Jones Index.




There is of course a reason why the gold price has an inverse correlation with the Dow Jones. Gold is a real asset, and the Dow Jones is an index of real assets (i.e. companies) measures in terms of paper currency. The price of those assets in terms of paper depends ultimately on how much paper is created to support nominal asset prices. Asset prices are currently falling. I believe that the Dow Jones will find support aroung 7500 points, from which point it is likely to recover. Looking at the chart, its apparent that the Dow-gold ratio is repeating a cycle that occurred in the 1920s, the 1960s and now the 2000s. On the last 2 occasions, periods of excess money creating were followed by events which saw the Dow-gold price ratio fall to a value of 4. Assuming that the Dow finds support at 7500, we are looking at a gold price of $1875/oz. But of course the USD will have little value in future, so expect real assets like the Dow index to far exceed these values in USD terms. Its not so much that these asset prices are going down, but that the USD is going to be debased out of existence. The implication is that the Dow and gold price could go far higher still.
This story looks like a conspiracy theory, but on reflection it makes a lot of sense. The naive might believe that this market crisis was sudden and unexpected, but if you had been reading about the role of gold and money in the economy for the last decade, you would know that we have been looking at a crisis for some time. I learned this about a decade ago, though it took me some time to appreciate what would ultimately cause the crisis. If a great many investors knew, you can be sure the US government knows. Afterall they wanted to benefit from it. It might actually be more sordid than you think. Its possible than the US government intentionally borrowed and funded the US deficit with debasing USD with the intent of defaulting or paying them back in worthless paper. Financially cunning to be sure, but not the best policy in global diplomacy. Maybe the US government wants a war with China before they get to powerful. Anyway read up on this claim that the USA is already minting a new USD. To my mind China is involved in this policy because it has benefited from 2 decades of unprecedented industrial expansion. It has brought them closer to the USA, not further apart. Its 2 fascist states looking themselves in the mirror. See http://video.google.com/videoplay?docid=1954933468700958565&hl=es. The story seems far-fetched, but consider that if you were going to debase a current (USD) as the government has been doing, then you would have a plan for overcoming the problem. It makes you wonder why George didn't have a plan for Osama or Katrina. Maybe those issues were not the real issues. When it comes to politics, you have to question everything. These smart-arses really twist perceptions. Its enough to make one turn to conspiracy theories for ones daily news.

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Andrew Sheldon www.sheldonthinks.com

The gold price has fallen back to support levels, though can expect equities to fall further. This however does provide an opportunity for an entry into gold options and bullion.
We can see from the chart that gold has reached the $690/oz support and recovered to the $730s.
Gold in Euro terms is also near support.

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Andrew Sheldon www.sheldonthinks.com

Silver prices reach support

Remember in the 1980s when gold rallied by 800%. Well before it did, the gold price halved. We have seen the same thing happen in silver of late. Silver has fallen back to important support levels, so its set to rally. All that money the Fed has created to re-capitalise the banks is going to prove inflationary in time. The implication then is that we want to hold asset classes which are not over-priced, like gold, silver, rural property, etc.
Silver is currently trading at $9.75/oz, up 33c overnight after halving in last 6 months. This is the time when you should be accumulating silver. You might ask me whether you should be trading Contracts for Difference (CFDs) in these commodities. I see no reason why you shouldn't because if these companies are exposed, your exposure is limited to the money on the table, and that's only 10% of your exposure if you are moderately geared to silver. You can actually gear silver as much as 20x as far as I'm aware, though it will depend on your CFD platform.

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Andrew Sheldon www.sheldonthinks.com

Gold close to support $730-770/oz

I am expecting gold to find support around these levels of $730-770/oz. The price has fallen to a long-term support. There is probably no better time to buy gold than now, though its possible that gold might consolidate in its current trading range for another 4-6 months. The policy of the Obama government will play an important role. I actually don't expect any change from Obama on monetary policy. I think he will be a social reformer intent on increasing taxes on the rich, as well as energy. No surprises there.

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Andrew Sheldon www.sheldonthinks.com

Platinum prices reach a low?

Platinum is of course a precious metal, so its in the same category as gold when it comes to the 'safe havens' of investment. It does have some interesting differences compared to gold though. These are:

1. Small stockpile compared to the vast hoards of gold
2. The greater industrial utility of platinum (arguably)
3. Greater volatility, smaller market, greater liquidity

We need to remember that platinum has performed far better than gold, and as a speculative instrument platinum was bound to be sold off. Car manufacturers would be cutting back of their needs for catalyst materials, so precipitating the price fall. The asset collapse is scaring people. But I suspect we are very close to a turn-around in this metal, and therefore platinum stocks. This metal might even do better than gold. The metal is already back to $950/oz. It has broken its uptrend, so we would be looking for a support. It might be $650/oz. Hard to believe many producers in South Africa could be profitable at those prices given the escalation in mining costs.
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Andrew Sheldon www.sheldonthinks.com

Silver price up 16% overnight, gold up 14%

Gold is looking good. Silver is looking even more spectacular. Silver is trading in a different trend pattern to gold, but equally as promising. Using technical analysis we can see that silver has been very volatile. It pulled back to $10.50/oz, but it has since recovered to $12/oz, up 16% overnight. The reason is clearly due to the debasement of the USD and inflation.
The chart pattern shows that silver has previously made a succession of new higher highs, whilst basing out around the $10.50 support. The next move of course is for silver to rally to a new high.

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Andrew Sheldon www.sheldonthinks.com

Gold going to $US1400/oz in the short term

Wow, I just picked up on something. I was looking for the gold price to fall back to $700-750/oz levels and is did that, but its since recovered to $US864/oz, thats a 11% increase overnight. Seldom do we see such volatility in the gold market, but its actually more significant than that because its actually preserving a certain chart structure that is very bullish for gold.
There appears to be a 'flag' structure developing between $800-1000 levels. The significance of this is that when flags are terminated on the upside, they tend to advance by the same amount as the flag pole. In this case the flag pole is between $400-800 levels, so I am expecting in the next gold rally for gold to break out above $1000/oz and to rally up to around the $1400/oz level. I am expecting it to do that very quickly before pausing. The 11% move I think signals its going to keep going unless we see a pull back overnight. The concern of course is that the USD is being debased at a time when the US will not have the confidence to raise interest rates to fight inflation.

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Andrew Sheldon www.sheldonthinks.com

West Texas Crude Oil price outlook

Well we have been told for a long time that there is no oil shortage; that its speculative trading that is driving oil prices higher. The flipside is that given the current weakness on the (economic) demand side, there is very little to hold oil prices up except the promise of a resurging oil price. Crude prices have for a long time been a very volatile commodity. So where are prices going?
I point will be reached when traders say - it must be time to buy again. Some wind has been taken out of the market, but oil is still the most important commodity on the earth. So when might we expect oil prices to bottom. Well its still a little time off. Certainly we are not returning to the bad old days of the 1990s when commodities were under-appreciated. Oil will trade in a new, higher range. We will not see oil prices return to $9/barrel when there are large emerging markets like China and India around, and a large number of SUVs with a useful life of 15 years.
Oil prices are going back to around $US77.50s, though I would argue traders could take it as low as $70/barrel in volatile intra-day trading. I do however think there will be some resistance on the downside around $97-100/barrel. There are 2 reasons for this:
1. A weaker oil price is likely to give equity markets encouragement
2. People's standard of living expectations will adjust, resulting in an improvement in consumer confidence. Not everyone went out and bought a 2nd house, and speculated on US property. But some people did, and some people did buy at the top, fearing they were going to miss out.
3. Lower oil prices will give consumers more money to go out and spend
Nevertheless I don't see the market fully recovering for a while yet, but I do think the next 6 months will yield some stock bargains, particularly with property foreclosures and commodities. I think the nickel market will be the first to recover, followed by gold. The other metals will likely take a bit more convincing.
So the target price is $US77 level for a bottom in oil prices. This is a strong support having been resistance, though I have some suspicion that oil might fall to $70/barrel in the short term, so there is some reason to be cautious trading that position in order to get the best entry.
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Andrew Sheldon www.sheldonthinks.com

Tin prices remain strong

Tin prices have remained one of the stronger commodities in the market. The reason of course are the solid fundamentals for tin. Supplies of tin are relatively tight, and there is evidently some success by the Indonesian government to rein in illegal mines. But as a traded commodity tin is likely benefiting more from a delayed rally in prices. Being one of the most volatile and illiquid markets, it seems destined to have a correction at some point. I don't see tin prices benefiting from a proposed substitution of lead for tin in ammunition on environmental grounds. Realistically, I don't see this as a huge market, since the dispersion of lead in the soil is small. Also the damage tends to be inflicted on other countries, so I don't see a great deal of support for this proposal, least of all when tin prices are 9x higher than lead.

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Andrew Sheldon www.sheldonthinks.com

Zinc prices support at $1450/tonne

Zinc prices have fallen from a peak of over $4500/tonne to around $1800/tonne. You might wonder whether they have any further to fall. I believe they will at some point fall back to the $1450/tonne support. This level was an important resistance during the ascension of zince prices. The weaker economic outlook paints an unattractive outlook for zinc, but there will be a recovery in zinc demand with a resumption of building demand in the medium to long term.

Expect demand mainly from developing countries, plus Australia in short term, other Western nations in the long term. Australia will come out of this economic weakness faster than any other Western nation because of strong iron and coal prices, and a recovery in food prices. Of course it will also benefit from stronger base metals and gold in the medium term. Nickel and gold will do the best in the short-medium term.
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Andrew Sheldon www.sheldonthinks.com

Copper prices close to support

It will be interesting to see if copper prices hold their current levels in the coming weeks. I have less confidence of that than I do in nickel. Nickel prices have fallen far more, and I think the outlook for building construction and consumer items would have to be more secure than copper use. The dynamics for copper supply are a little tighter though, however I would not be surprised to sell a short term sell off to $5,1oo/tonne. Its a huge fall, so its not a position I would trade. It might well stay above $7,000/tonne. I dont have any empirical evidence to suggest this market will fall, just that its vulnerable. The other reason for caution is the extent of trading in copper as a financial instrument.

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Andrew Sheldon www.sheldonthinks.com

Nickel prices have reached support

Thje nickel market is one of the better commodity exposures you can take, and best of all the market price for nickel has reached low levels. This makes a great period to buy nickel as a commodity exposure, though I would not be surprised if the metal pulls back again to test its support once again, particularly as other metals are still yet to bottom. I would caution that nickel miners will also take some time to shine, even if nickel prices are the first to recover among the base metals.

I don't see downside below the red line on the chart because its a very firm support. There is a number of reasons nickel is good:
1. There are a number of attractive projects to invest in WA
2. The market is set for a good rally
3. Nickel is used in stainless steel, and a recent development is the use of stainless steel in the external and internal facades of most buildings. Buildings being BIG, mean that the intensity of consumption in most countries, but particularly developing countries like China, is really taking off. Of course there is a lot of nickel around as well, but there are supply constraints as well.
4. Its a volatile commodity. Once it falls back to support once more I can see it rallying to $25,000/tonne, previous support acting as resistance. It will reach $33,000/tonne in 2009, and I suggest a few years later it will reach that previous high around $54,500/tonne. I don't see this commodities boom over by any means.
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Andrew Sheldon www.sheldonthinks.com