September 30, 2019 BARRON’S M9
Commodities Corner
A Shining Year for Metals
By Myra P. Saefong
METALS TOOK THE SPOTLIGHT IN THE THIRD QUARTER, WITH SILVER AND NICKEL
shakingoffworriesoveraslowdownintheglobaleconomytoscorethelargest
percentage gains among major commodities since the end of June.
It’s been a strong year for metals, “but the drivers have been different,”
saysGregoryLeo,chiefinvestmentofficerandheadofGlobalWealthManage-
ment at IDB Bank.
Nickelis“muchmoreimpactedbysupplyanddemand,”hesays,andwhile
those factors also influence gold and silver, the two precious metals also re-
spond to the market uncertainty and the U.S. dollar exchange rate.
The cash price for nickel on the London Metal Exchange has climbed by
37%quarter-to-datetosettleat$17,365permetrictononThursday,according
toFactSetdata.Silver’sriseisalsoimpressive,withmost-activeComexfutures
contract prices up about 15% for the quarter, at $17.652 an ounce on Friday.
Newsofanearlier-than-expectedIndonesiannickel-oreexportbanledto
nickel’srally,saysDeePerera,ananalystatMarexSpectron’sLMEdesk.The
banwasscheduledfor2022butIndonesiaconfirmedlatelastmonththatthe
ban will be implemented on Jan. 1, 2020, she says.
“Nickel’s outperformance was driven by this metal-specific story,” says
Perera.ShepointsoutthatonSept.2,nickelpricesreachedahighof$18,850,
alevelnotseensinceSept.2014—whenIndonesiafirstputabaninplacebe-
fore relaxing it in 2017.
Still, there is “some skepticism aroundtheimpactthattheIndonesianore
exportbanhashadontheprice,withrecentreportsindicatingthatIndonesian
miners can seek export quotas into year end,” she says.
Also,productionofChina’s“nickelpigiron,”whichcontainsnickelandiron,
hashitrecordhighsinrecentmonthsandsomeana-
lystssuggestthatexistingstockpilesandslowingde-
mandshouldmeanthatnickelmayavoidasignificant
deficit,Pererasays.Nearterm,shesaysMarexSpec-
tronexpectssupportfornickelintothe$16,690area,whichmarkedtheApril
19,2018,andAug.8,2019high.AnLMEchartshowspricesgenerallytraded
belowthatlevelbetweenthosedates.Meanwhile,silver’squarterlyrallyhelped
itcatchupwithgold’syear-to-datepricegain,withsilverfuturesupnearly14%
versus gold’s almost 18% rise for the year, as of Friday.
Bothmetalsare“realassetsthatbenefitfromeconomicandpoliticaluncer-
tainty,”saysMariaSmirnova,seniorportfoliomanageratSprottAssetMan-
agement.Butsilverhasalowerpricepointandisalsoamuchsmallermarket
“soittakeslessdollarstomovetheprice,”shesays.Giventhat,it“usuallyout-
performs gold in bull markets.”
Thesilver-to-goldratio,ortheamountofsilverouncestooneounceofgold,
felltolowsaround32in2011andpeakedaround95inJulyofthisyear—the
highestratiosince1991,saysPeterSpina,presidentofsilvernewsandanalysis
providerSilverSeek.com.“Ifweseetheratiojustmovebacktothemid-point
ofthetwoextremesoverthelastseveralyears,silvershouldbeinthelow$20s
and thus still looks undervalued here from a gold perspective.”
During its pullbacks, silver has shown some “great support” under $18,
though it could find difficulty getting into the lower $20s in the short term
withoutgoldpricesreachingnewhighs,hesays.Inthecomingmonths,Spina
sayssilvercouldbuildastrongbasearound$18,with$20to$21asthe“next
major technical resistance,” and he’d be a buyer of silver at $18 or less.
Commodity Indexes,
Barrons.com
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