Metal commodity prices will remain strong for at least the next four or five years supported by a combination of strong demand and lagging supply growth, forcing analysts to upwardly revise their price forecasts, Sprott Securities said on Monday.
"I think that the (high price) environment is poised to last for the next four to five years...because of the lack of the supply. You can't snap you fingers and bring new mines on," David Stein, institutional analyst at Sprott Securities, told Reuters on the sidelines of a European Investor mining and metals forum in London.
Sprott Securities is an independent Canadian brokerage, covering sectors including mining, oil and gas, technology and industrial products.
Spot gold on Monday matched a 25-year peak of $598 an ounce, while copper and zinc were at their highest prices ever.
"We are pretty bullish on gold. We expect the dollar to weaken when the Fed stops raising interest rates," he said.
"We are also seeing that there may be a trade war or escalation of (trade tensions) with China and other countries when the United States goes to senatorial and congressional elections this fall.
"People will be talking about saving US jobs. Anything like that could be bad for the dollar and good for gold," Stein said.
He said that foreign currency holders may want to convert some of their dollar holdings into gold.
"There is so much money - US dollars - held by other countries and we think it will flow into gold. If just one percent of the US dollars held in international reserves were to go into gold, it would buy half a year's supply."
He said Sprott had raised its 2006 gold forecast to $600 a troy ounce from $550 and to $650 in 2007-2008.
Sprott's target for silver was $10 for 2006 and $12 in 2007. "That is looking a little light," he added.
Spot silver jumped on Monday to a 23-year high of $12.50 an ounce before easing to $12.38/12.41 by 1245 GMT, against $12.06/12.09 in New York late on Friday.
Silver has been supported by speculative interest in a planned exchange traded fund in the metal.
"There is strong investor demand and fundamental industrial demand. With gold where it is, you would expect silver to be above $10. The fact that people are buying ahead of (the ETF) has pushed silver a little higher." He added that new uses for silver as an antiseptic could significantly boost demand.
"That is a global demand story not just the US or Europe. We don't really know how much metal these new applications will use, but they could be extremely widespread - from clothing to medical instruments," he said.
Other metals would not be left out of the picture, he said.
"We see copper above $2/lb ($4,400 a tonne) for several more years," he said.
"It all will depend on how quickly new supplies come on stream. There are a lot of projects in the Democratic Republic of Congo which could be on in three or four years' time. "But if there is a geo-political disaster there, that could be seriously positive for the copper market as the DRC is one of the few places in the world that is under-producing."
He said uranium could be one of the strongest performers amongst metals. Uranium prices have already risen from around $29.50/lb in mid-2005 to above $40 this week.
"The fundamentals look great. Reactors take a long time to build so we have a lot of visibility on the demand side for uranium over the next 10 years. "It looks likely that by 2015 there will be 100 new reactors going online or under construction. "China is the big one, India has committed to some and the US, I believe, has committed to 20," he said.
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