1994: A LOOK BACK — Gold upstaged by base metals in 1994

At the start of 1994, the price of gold seemed likely to reach the US$400-per-oz. benchmark, while many producers of base metals were either reporting losses or, at best, struggling to break even.

At year’s end, the picture had changed dramatically. The yellow metal had slipped to the US$370-to-$380-per-oz. range and the market appeared flat and aimless, at least in comparison with 1993 when it was volatile and on a clear uptrend. Silver, too, failed to generate much excitement in 1994, with prices ending the year below US$5 per oz. Base metals, on the other hand, put on an impressive performance during the year, with copper, aluminum, nickel and even zinc demonstrating bullish improvements after a 6-year downtrend.

Almost every non-ferrous metal enjoyed a rally in 1994, and not all of this was tied to traditional factors related to supply and demand. The strengthening economies of many countries, combined with the likelihood of increased demand over the longer term, attracted the attention of investment funds. This speculative activity added a new dimension to metals markets and helped elevate metal prices, as well as the share prices of many base metal producers. By the end of the year, however, a few voices in the wilderness could be heard warning that too much optimism in 1994 would lead to across-the-board corrections in 1995.

Copper was expected to be a star performer in 1994, based on a view that strong growth in demand would emanate from Asia, particularly among the newly developing economies and China. This bullish outlook was borne out by prices for the red metal, which started the year at about US79 cents per lb. and ended it at US$1.36.

Copper demand is expected to remain strong for the rest of this decade, and this prompted a number of companies to start developing large copper mining operations in 1994, particularly in Chile. But some analysts are already cautioning that an oversupply of mine production in 1996 and 1997 may put some downward pressure on the price of copper.

Nickel producers had plenty to cheer about in 1994. Prices for the beleaguered metal started the year at about US$2.40 per lb. and ended it at about US$4. A surge in stainless steel demand prompted several producers to increase production through expansions, and to take a look at reviving mining projects that had been on the back burner.

Zinc markets attracted the least interest in 1994, as evidenced by the metal’s price, which gained only a nickel to the US50 cents — per lb. — level during the course of the year. Massive exports from China kept the market under downward pressure, and analysts say inventories are still too high to sustain a bull market in this sector.