Spot gold prices hit $1,200 in early December as investors continued to gravitate toward hard assets because inflation fears moved them away from the U.S. dollar. It was definitely a good year for the precious metal. It's probably too much to ask for the same performance in 2010. Copper's price gains were double those of gold as investors looked for alternatives to the yellow dust. Additional gains could be just around the corner, prompting speculation that copper is the new gold. It just might be. However, we won't know until the economy recovers and the construction industry (the main users of copper) gets back to work. Until then, it's nothing more than conjecture. (For further reading, check out An Overview Of Commodities Trading.)
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In September, Barrick Gold (NYSE:ABX) started buying back the 3 million ounces of gold it was hedging so that it could take advantage of rising prices. In order to accomplish this, it issued $5 billion in debt and equity and took a $5.7 billion charge in the third quarter. Although it was a big pill to swallow, shareholders had been pressing management for years to do something about the situation, which effectively tied its hands as gold prices nearly quintupled since 2001. No longer willing to sit by and watch revenues pass it by, CEO Aaron Regent stated in ABX's press release: "Our positive view on the gold price led us to accelerate the elimination of these contracts ahead of the schedule we had established." I hope for Barrick's sake that gold prices do keep rising or they'll be hurt a second time by poorly timed decisions. (For more, see The Midas Touch For Gold Investors.)
Copper Prices Doubled in 2009
Can the base metal keep it up? Well, if a commodity's value is measured solely by its utility, copper is certainly more useful than gold. However, the commodity that truly protects investors from inflation is oil, which trades around $70 despite being in a global recession. If you read economist Jeff Rubin's blog at the Globe and Mail website, you'll know that he's a big proponent of oil prices causing the latest recession, not subprime mortgages. If you believe, as I do, that Rubin is correct, then the safer bet is with oil rather than copper or gold. But that's a subject for another day.
Current copper prices sit at around $7,000 a ton. Commerzbank predicts this will drop to an average of $6,450 a ton in 2010. However, if demand doesn't pick up, that number goes out the window and companies like Freeport-McMoran (NYSE:FCX), Newmont Mining (NYSE:NEM) and Southern Copper (NYSE:PCU) will experience a much rougher ride in 2010. (For related reading, see The Copper King: An Empire Built On Manipulation.)
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