Resource Stocks, Metals Beaten Down

Source:

One London base metals trader noted that "oil and gold have both submitted to selling pressure, increasing concerns that there may be some index fund investors just taking money off the table". Also, according to a Barclay's survey, investments in commodities hit a record $178bn in 2007, leaving a number of investors prepared to take profits off the table at short measure.

Resources stocks around the world were severely beaten down again on Monday, after taking strong medicine on Friday as the global metals complex changed mood to test downside support. The wider Australian market was one of the first on Monday to test fresh 2008 lows as bleak US jobs data out on Friday added to mounting evidence that the US is in a recession. As the day dragged on, bank stocks around the world fell on further signs of trouble in credit markets. In the U.S., Citigroup forecast $9 billion of write downs at U.S. investment banks in the first quarter of 2008, mainly on the back of additional leveraged loan and mortgage-related losses. However, resources heavyweights took among the most severe punishment, with BHP Billiton and Rio Tinto each down by more than 5% in later Monday trade in London. After pushing to a record high of $992.50 an ounce on Thursday, gold bullion was quoted at $977 an ounce late on Monday. Platinum, also at a historic peak on Thursday at $2,301.50 an ounce, had fallen to around $1,960 an ounce by late Monday; silver retraced from Thursday's highs of $21.22 an ounce to $19.62. Copper, the leading base metal similarly made a historic record at $4.02/lb on Thursday and was trading around $3.78/lb late on Monday. Other metals in the base metals complex sold off, despite figures pointing to falling inventories.

Seasoned investors were not panicking, however, during Monday trade as listed resources stocks of all classifications made very heavy going. Since the onset in late 2001 of the modern metals and commodities bull market, rallies have been consistently sold. Metals had also been forced onto the back foot on Friday on market talk of margin calls held by speculative investors forcing liquidation of profitable positions.

One London base metals trader noted that "oil and gold have both submitted to selling pressure, increasing concerns that there may be some index fund investors just taking money off the table". Also, according to a Barclay's survey, investments in commodities hit a record $178bn in 2007, leaving a number of investors prepared to take profits off the table at short measure.

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