Precious metals have seen one-side rally but commodities plunged

Last Updated: Fri, Sep 14, 2012 04:19 hrs

Four years ago, global financial markets felt a big shock when Lehman Brothers collapsed in the US, the tremors of which were felt in the commodities space as well.

Though commodities recovered some lost ground, only precious metals saw tremendous growth in the last four years.

Gold prices have surged 107 per cent, while silver went up 145 per cent globally. In India, due to fall in the rupee, the metals are up 165 and 195 per cent, respectively. This was a one-side rally.

“Since the collapse of Lehman Brothers, gold has demonstrated its value as a safe haven during times of crises as it more than doubled in value. Investors clearly sought out the metal due to such factors as counterparty risk or low or negative returns in equity markets,” said Neil Meader, research director at Thomson Reuters GFMS.

“As long as a general uncertainty remains with us and holding a non-yielding asset such as gold is favoured by low-interest rates, there are good grounds to expect further strength in investment and, therefore, the price,” Meader added.

Except bullion, all other commodities fell sharply after the crisis set in four years ago.

The liquidity pumping by central banks, mainly the quantitative easing programmes (QE1 and QE2) of the US Federal Reserve, helped commodities rebound. However, the Euro zone debt crisis and economic slowdown in major commodity consumers, like China, have further dampened the sentiment.

Perhaps the metals market has learnt that if a central bank releases money, it will come to commodities.

Andrew Cole, Senior Metals analyst at the London-based Metal Bulletin Research, said: “From the Lehman crisis, we have learnt that, in the aftermath, if you throw money at the problem, commodity prices rise. And, they recover faster than the underlying economy. Prices rise because the liquidity being injected into the financial markets finds its way to commodities, and the same is likely to happen with QE3.”

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