Disaster demand in precious metals

Disaster Demand in Precious Metals
The disaster in Japan these days has made everything change. There are changes in human daily life and also changes in trading world, especially in commodity trading . Talking about trading world, we need to know how the markets were affected to plan our business. Today, we will have a short review with the Gold Bullion Report about the topic: Disaster Demand in Precious Metals.

These day, the last week’s earthquake in Japan has become a hot topic that the whole world care about. It has quickly escalated into a major disaster, with the ensuing tsunami and nuclear reactor meltdowns. As noted, the earthquake was the worst in the country’s recorded history, and the costs will no doubt be high in terms of victims as well as damage to key industries and the Japanese economy.

The initial reaction brought a fresh wave of interest into precious metals, but the current climate seemed to favor liquidation of assets. What might the future hold for precious metals in the wake of this disaster? We will go the next part of the Gold Bullion report to see if we can find the answer.

Past performance is not indicative of future results. ***chart courtesy Gecko Software Past performance is not indicative of future results. ***chart courtesy Gecko Software

The initial catalyst for commodity investing is likely to come following this round of sell-offs, which seems more liquidity based than fundamental in nature. It appears as though the sparks to this flight from stocks and commodities was struck as investors sought cash.

However, a shift is probably just around the corner as the traditional haven status of markets like gold takes hold. To bolster this move, it is also possible (Note that I – our expert - should emphasize that I am not advocating profiteering during tragedy) that the rebuilding of Japan could hold more potential for another bull run in commodities, especially precious metals.

The so-called commodity super-cycle was already underway, fueled by the urbanization of countries like China and India. That additional consumption and commodity demand was only weakly met by increased yields and production for certain commodities.

Sure, economic slowdowns might have put a stopper in some of these markets, but where that bearish argument dead ends, a bullish argument for the investment side of the same commodities picks up. Investors uncertaining about the future of some stocks and some currencies sought an alternative asset in gold and bonds as a means of potential asset preservation.

People may think of the question if that dry up when disaster strikes? Perhaps initially it will, but there is a long road ahead for Japan and the world markets. While certain things like oil and perhaps even precious metals will have a neutral to negative demand in the devastated nation, the potential gains in consumption on the path to recovery and after have historically balanced that picture.

Now let’s consider the following ideas!
We all know that Japan is one of the world’s largest economies. This is the country that has a huge industry in electronics, which means certain physical metal demand. I means components for electronics, laptops, and cell phones all require metals, including highly conductive gold and silver….

Even without direct demand from Japan initially, analysts are forecasting that China will ramp up their production (and therefore metals consumption) of electronics and electronic components. Their demand has already been higher, led by stronger jewelry and investment sectors so a manufacturing boost would likely require another increase in gold and silver consumptive demand.

The automotive industry in Japan might be likewise hobbled, and damage assessments are still ongoing. This means that whichever producers pick up the slack will have increased needs for automotive catalysts and components and – you guessed it – PGMs like platinum and palladium.

Another wonder that needs to make is is that if current damage to products and parts unlikely to leave things salvageable?! It’s also possible. That means replacement stock when factories get up and running again.

And don’t forget other rebuilding efforts. Many lives have been lost. Here I do not want to downplay that, but there will be a lot of basic building demand and that could result in an influx of cash into the commodities markets as a whole: copper, aluminum, oil, natural gas, etc.

Don’t forget that there could even be a boost to alternative energy sources on the heels of severe nuclear reactor failures. That might mean natural gas as well as solar power. Silver is a big part of the solar cell side of that industry, owing to its efficiency in absorbing the sun’s energy. Harnessing new power technologies is a real possibility.

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Disaster demand in precious metals

by Jack Johnson on Mar 17, 2011

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Disaster demand in precious metals — Presentation Transcript