Funds continue to periodically take profits from commodity markets.
Soon,
equity investors will reap profits from positions taken in leading miners

there has been some profit taking over recent days. Underlying fundamentals
are
strong, buoyed by rising capital costs, shortages of equipment, raw
materials
and expertise necessary for successful completion of new projects.
The positive
outlook for metals, including uranium for nuclear power reactors,
notably in
China, ensured the latest corporate play centred on WMC Resources
Limited
(WMR). Some projects are being delayed and in some cases being put
indefinitely
on hold until such time as restraints ease. As always, there are
reasons for
caution, such as China’s overall imports slowing and the US twin
deficits and
prospect of higher interest rates.

Commodities usually fare well in a rising interest rate environment. The
same
cannot be said for some other sectors that suffer higher discount rates,
which
result in lower valuations that are achieved by contracting price
earnings
multiples – in other words, share prices fall. Go the resource sector.

[A graph at the end of the article shows the CRB index and its “real”
(ie.
inflation adjusted) value. It seems the current commodity boom is, so far
at
least, a minor interruption to a long downward trend. Read more here.

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Peter Fray
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