Technical University Munich Commodities as an Asset Class - risklab

2.1 The different Commodity Types
natural gas. Therefore, nervous market reactions to possible supply interruptions
can occur. Hurricane Katrina destroyed major pipelines in Oklahoma. The reaction
of the market can clearly be seen in the huge amplitude of natural gas prices in
August 2005.
2.1.2 Metals
Figure 2.1 showed that metals are divided into two big groups: the precious and the
industrial metals which will be introduced in this section.
Precious metals have attracted people with living memory. In former times mainly
used in jewelery, they moved into industrial usage, today. Their representatives
include gold, platinum, palladium and silver. They are mainly used in electric and
computer circuit. The strong market expansion in this area resulted in a high demand
for this metals. But for investors gold is still the most attractive representative
of this group. The reason for this can be found in golds role as international currency
and with it as store of value. Therefore, its characteristics and price influencing factors
are presented in Section 2.1.2.1 and shall exemplify an investment in precious
metals. The history of gold is affected by times of the so-called gold standard as
different world currencies were backed up by gold’s value. The last period ended in
1971 as world’s leading currency, the US dollar, was disconnected from gold’s value.
The purpose of the analysis is to find out whether the gold price movements of last
years are still connected to world currencies or not.
Industrial metals are mainly used in construction and building of infrastructure,
transportation and housing. During the 1980s metals industry went through a regression.
Technological improvements enabled savings in materials, e.g. cars became
lighter or aluminium and steel were substituted by strong but lighter carbon compounds.
Falling prices made the industry line unattractive. Production was driven
down and investments in new production areas disappeared. With the boom of
emerging country’s economies, the demand for industrial metals increased sharply
because new production plants and infrastructure were needed and followed by a
housing boom as standards of living increased. Everybody knows the headlines
about ”China - works ahead!”. The activities pulled of huge amounts of the metals
for what the industry was not prepared. The analysis’ of Appendix B.4 to B.8 show
the inventory destroying effects of these movements followed by rising prices. The
main problem in metals production is the tediousness of the industrial development
of new mines and refineries. In general, many years pass by from the exploration of
a new ore deposit until the first hammer blow. Apply for an official digging approval
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