Base Metal Inventories Depleting

Base metals should spike as inventories head lower.

Base metals rebound coming

The China credit impulse is forecasting a rebound in base metals. 

Confirmed by China bottoming.

At a time of all time low inventories.

Monetary Base Vs. Gold Reserves

The following chart shows the U.S. Monetary Base Vs. U.S. gold reserves.

These two should match with each other. Either the price of gold goes up, or the U.S. gold reserves should go up. This is why I include the monetary base in the Gold Forecaster Index, because it is correlated to the gold price. The more the Federal Reserve prints money, the more U.S. gold reserves are needed. The more gold reserves are acquired, the higher the gold price.

Today, the gold price should be at $5000/ounce.

 

The Trend in Base Metals based on Capacity Utilization and China Manufacturing PMI

To forecast the trend in the price of base metals we have a lot of indicators to look at. Two of the most important indicators to look at in my perspective are capacity utilization and the China manufacturing PMI.

Previously, I noticed that capacity utilization for mining in the U.S. was improving in November 2012, with the rate growing to 91.1%. Though, the problem is that the U.S. isn't that important anymore when talking about commodities. For example, in 2012 the emerging markets account for 75% of global iron ore consumption (Chart 1), while Asia, South America and Oceania account for more than 70% of global iron ore production (Chart 2). The same trend can be found in gold and silver production/consumption.

Chart 1: Iron Ore Consumption by Continent

Chart 2: Iron Ore Production by Continent

It would be wrong to only look at the capacity utilization of the U.S. to draw any conclusions on the prospects in the commodity market. It's essential to include China, South America and Australia/Canada into the equation.

To read the analysis, go here.