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Brad's Desktop
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Written by Brad Zigler
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Tuesday, 05 February 2008 15:15 |
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We've talked (oh, all right, I've pontificated ...) about the contrast between yellow and black gold on these pages before. In one screed ("A Picture's Worth A Thousand Words"), I railed that crude oil was a better inflation indicator than yellow gold.
I'm not backing away from my contention. But some analysts are now making the case for another black energy source: coal.
"Coal is the new gold," says Richard Gibbs rather bluntly. Gibbs, who heads the global economics unit at Australia's Macquarie Bank, is calling for thermal coal prices to rise more than 50%, to an average $88 per metric ton, in the coming contract year. Thermal coal is used for heating and power generation. Metallurgical coal, utilized in steel manufacturing, should rise to an average price of $150 per metric ton in 2008 according to Gibbs.
What, or who, is um, fueling this price hike? The usual developing country suspects, with China at the top of the list. Coal supplies 80% of China's current power capacity - and not very well, judging from recent news reports.
The rising demand for energy to power industrialization, mass transit for an increasingly urbanized populace and all the gizmos and gadgets desired by a wealthy society are tightening supplies.
Gibbs isn't alone in his call for higher coal prices. On top of this winter's crippling snowstorms in China, the effect of floods in Queensland, Australia and the lingering South African power crisis all figure to boost coal's value.
Citicorp economists are even more bullish on coal than Macquarie's Gibbs, calling for a doubling of prices in the upcoming contract year.
Not that coal is cheap, mind you. Nor are the stocks of companies producing the stuff. The Stowe Coal Index, a composite of five dozen worldwide producers, doubled in 2007 compared to a 32% increase in the price of gold. Adjusting for volatility, coal stocks are twice as efficient as gold in cranking out gains.
At this rate, it may pay investors to risk a little black wallet disease.
Coal: The New Black Gold
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There is no doubt that coal should be a good part of a diversified nat. resourse portfolio. Coal is cheap and abundant compared to other energy sourses and new tech. makes it cleaner and cheap energy is needed. However I still believe that gold and other precious min/metals still hold significant upside potential due to many factors such as difficulty in recovery and the many uses other than an investment.Plus, try to buy something with a lump of coal. I'll continue to trust the nat/resourse sector for a viable investment and coal will be a part of it but the precious metals will be a larger core position,that way if things go south in this realm I'll at least have something left that can be useful in more ways that just a holiday stocking stuffer.