Shayne Heffernan on Gold, Copper, Inflation and War

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Economist Shayne Heffernan sees Gold trading near $2500 and Copper over $5.15 in 2012 as demand, new government regulations in Emerging Markets, Inflation and the possibility of conflict all combine in what might be a perfect storm for metals.

China reported annual gold demand rose by 20% in 2011 to 769.8 tonnes and the trend is likely to continue this year too. The country is set to emerge as the largest gold market in the world for the first time in 2012. The long-term fundamentals for gold remain strong, with a diverse and growing demand base, coupled with constrained supply-side activity.

Copper supply shortfalls may deepen should growth accelerate. China's official purchasing managers' index increased to 50.5 last month, the highest since September, data from the statistics bureau on Feb. 1 showed. India's manufacturing grew at the fastest pace in eight months in January, HSBC Holdings Plc and Markit Economics reported the same day. The Institute for Supply Management's US factory index rose to the highest level since June last month, the group said two days ago.

Raw materials are rebounding from the first annual drop in three years on growing signs the world will skirt another recession and reports that manufacturing is expanding from China to India to the US Investors are betting record-low US interest rates and China's efforts to shore up growth will bolster demand.

While global growth may be slowing, the consumption of commodities is expanding faster than supply. Morgan Stanley predicts shortages in copper, palladium and iron ore this year and Barclays anticipates the same thing for tin. The London- based bank also expects oil inventories to drop in the third and fourth quarters as production falls short of demand. Rabobank International forecasts deficits in coffee and cocoa.

China's economy will expand 8.1% this year, and up to 8.7% in 2013

China's economic growth will decelerate to around 8.1% this year and edge up to 8.7% in 2013.

But that is just part of the story, Geopolitical dynamics are also helping raise the Gold price.

It now appears the Taliban still control Afghanistan as the US installed Karzai continues to court the Taliban leadership for peace talks and has returned many Taliban policies to the nation, Afghanistan and Pakistan are an increasing threat to global peace.

US sanctions on Iran and the consequent tensions leading to hardening of crude prices, high oil prices increase inflation and the demand for gold, a hedge against inflation, also rises.

Iran has gone Nuclear, with this new threat to the West the Leadership has launched terrorist attacks outside the country aimed at Isreal. As this situation worsens oil prices will rise and Iran will seek to influence OPEC production.

Iran has also yet to give an explanation over a small quantity of uranium metal missing from a research site, the U.N. nuclear watchdog said in a report that voiced concern over possible military links to Tehran's nuclear program.

In Syria,the government lashed out at Saudi Arabia on Saturday, a day after the kingdom's foreign minister backed the idea of arming the rebels fighting President Bashar Assad's regime, accusing Riyadh of becoming 'a partner' in the bloodshed in Syria.

The sharp riposte from Damascus, which was published in a state-run newspaper, came as activists said at least 68 people were killed across the country and regime forces pounded rebel-held neighborhoods in the central city of Homs. The International Committee of the Red Cross said negotiations resumed Saturday to evacuate from Homs civilians as well as two Western journalists who were wounded in government shelling earlier this week.

Syria's traditionally cold relations with Saudi Arabia have plunged into a deep freeze since the 11-month-old uprising against Assad began. The Sunni power in the region, Saudi Arabia has been a harshly critical of the Assad regime, which is controlled by the minority Alawite sect, and its brutal crackdown against the mostly Sunni opposition, but then again perhaps the world could do without another Saudi Arabia.

Inflation is the next big concern, not the numbers handed out by The Fed, but real inflation, and that does seem to be on the rise.

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Shayne Heffernan

Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.

Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services. Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels. www.livetradingnews.com

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