Stocks and bonds were under pressure Monday, a day ahead of the Federal Reserve's verdict on interest rates. But metals and related stocks were higher amid evidence of shrinking supply and a bullish call from a Wall Street powerhouse. The Dow Jones Industrial Average dropped 29 points, or 0.26%, to 11250. The S&P 500 index dropped 0.1% to 1301 while the Nasdaq Composite rose 0.1% to 2315. The benchmark 10-year Treasury bond fell 9/32 in price while its yield, which moves inversely, rose to 4.70%. The stock and bond markets fear the Fed may signal more rate hikes after delivering an expected quarter-point rate hike on Tuesday. Metals and mining stocks, however, were shining anew. Alcoa ( AA) was the biggest percentage gainer on the Dow after Citigroup raised its price target. Citigroup metals analyst John Hill also took the opportunity to upgrade Inco ( N) and Alcan ( AL) to buy from hold, and Phelps Dodge ( PD) to hold from sell. Among metals, copper rose 1.5% to $2.43 a pound, just short of an all-time high of $2.438 reached in European trading. Gold gained 1.2% to $567.40 an ounce, a three-week high, while silver jumped 1.5%, to $10.895 an ounce, a 22-year high. Among metals mining stock indices, the CBOE Gold Index and the Amex Gold Bugs Index both advanced 3.4% while the Philadelphia Gold and Silver Exchange rose 2.9%. Big gainers included Freeport McMoran ( FCX), up 5%, and Meridian Gold ( MDG), up 8%.
Supply/Demand Trumps Central Banks
Commodity prices -- including precious and nonferrous metals -- have soared in recent years, coinciding with a period of historically low interest rates globally, as discussed here . But given that the world's leading central banks have mostly turned to tightening mode, it might be logical to expect a pullback in commodity prices. In fact, the Reuters Jefferies CRB Index has dropped 7% since hitting a high in January. Beyond rising rates, some commodities players are looking at another key driver, at least for some metals: dropping supply and higher demand, an equation that always leads to higher prices.