Market turbulence affects prices and projects

Metal prices have been adversely affected by recent stock market turbulence, with the prices of most metals, including gold and silver, down because of the crisis in the US sub-prime mortgage lending sector.

The knock-on effects of the turbulence in the debt markets have yet to be assessed and while there is as yet little evidence of serious impact on the economies of China and India, some leading economies may be pushed into lower growth or even into recession.

The situation is likely to continue to impact on global demand for metals and minerals, unless there is a rapid and prolonged recovery in markets and confidence.

Banks are nervous of what can be seen as risky loans, such as those made to the mining sector, and this could undermine plans to increase metals production.

Whilst such an outcome could cause prices to rise over time, the metals markets have first to deal with the effect of cash-short institutions unloading their gold and silver assets.

In addition, despite the crisis emanating from the US, the dollar has been recording gains against other major currencies, and when the dollar rises, gold and silver prices tend to fall.

However, economists expect the dollar to remains weak and gold tends to thrive on market uncertainty.

What is in little doubt is that new mining projects and expansions will become harder to finance as banks look to the safety of credit requests.