EDITOR’S PICKS: TOP STORIES OF WEEK 1

With stock markets plummeting and oil and gold prices reaching record highs, the week ended Jan. 5, the first trading week of 2008, was a time to take in the macroeconomic view and ponder what kind of market turmoil we may see in the year ahead.

First, though, a quick tally of some year-end stats. Most notably, broad commodity indices were up 10-20% in 2007, as the global economy continued its growth and the U.S. dollar fell about 10% against the euro and trade-weighted indices.

Precious metals were some of the year’s star performers: spot gold rose 31% in U.S. dollars and 18% in euros during 2007, and ended the year at US$836.50 per oz. Gold has risen 18% annually on average for the last seven years, generating the longest bull market for gold since the yellow metal started trading freely in 1974. Still, the bull run seems to have much life in it yet, as gold would need to be trading above US$2,000 per oz. in today’s dollars to surpass the inflation-adjusted 1980 mark. Meanwhile, spot silver, platinum and palladium ended the year at US$14.76, US$1,529 and US$370 per oz., respectively. For comparison, gold, silver, platinum and palladium spot prices ended 2006 at US$635.70, US$12.90, US$1,117 and US$324 per oz., respectively.

In 2007 and going forward, base metal prices have been holding up rather well despite widespread concern that the U.S. economy will go into recession in 2008. The recession fears are being fed by the bursting in August of the U.S. real estate bubble, when acute problems first emerged in the mortgage-backed securities market, and then spread into falling housing starts, declining housing prices and increased mortgage defaults. Copper, which peaked at US$8,800 per tonne in November 2006 and then sharply retreated, remained surprisingly strong throughout 2007, as an anticipated production glut never materialized. Nickel prices hit an all-time record high of US$54,200 per tonne in the second quarter of 2007, and spent the second half of the year in a sharp correction. Zinc prices hit an all-time high of US$4,658 in November 2006 and then retreated.

Crude oil prices rose about 57% in 2007, partly due to global economic growth and partly due to increased political unrest in the Middle East, Africa and South Asia.

Of paramount concern to gold bugs, the spot gold price surpassed its nominal 1980 high of US$850 per oz. on the first two trading days of January, as crude oil futures briefly traded above US$100 per barrel in New York on Jan. 2, before pulling back. At presstime, spot gold was trading at another all-time record high of US$877.70 per oz.

Ominously, U.S. stock markets had their worst first-week-of-the-year performances since 1932, with the Dow Jones Industrial Average suffering its biggest first-session-of-the-year point loss ever, as 29 of 30 components fell. Some of the pullback may have been a response to developments in the political arena, as left-leaning Illinois Senator and Democratic Party-leadership hopeful Barack Obama surprised many by scoring a very strong win in the Iowa caucuses, which makes him the leading figure to become the next U.S. president in 2009.

On continued supply constraints, long-ignored magnesium metal hit a record high this week, touching US$3 per lb. and eclipsing the old high established in 1995. The light metal’s Western supply has been squeezed by China’s new 10% export tax on magnesium and other ferroalloys. (Though, at the same time, China is removing its remaining 2% import taxes on refined copper.)

After a rotten fourth quarter which saw its Galore Creek project in B.C. shelved, NovaGold Resources started off the new year with a bit of good news at its small-scale Rock Creek mine project in Alaska. The U.S. District Court for Alaska dismissed a pesky lawsuit by a local NGO and reaffirmed NovaGold’s mining permit, which should allow for commercial startup this year.

The reborn royalty vehicle Franco-Nevada, de-merged from Newmont Mining via an initial public offering that closed on Dec. 20, ended the year by tidying up a few loose ends. On New Year’s Eve, the IPO’s underwriters exercised their remaining over-allotment options and sold the resulting shares. Franco-Nevada now has 88.8 million shares outstanding, for a market capitalization of $1.6 billion. It now sits with $10.6 million in cash and no debt.

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