Volatility and Stability

Industrial metals such as copper, zinc and platinum had until recently escaped the volatility of the metals market — whatever the financial markets might do, these metals were connected to a real world of real demand: real contracts for electrical wiring, galvanised steel and catalytic converters in car exhausts.

Yesterday, however, on the assumption of contraction in demand, these metals were hit by a wave of selling. Copper dropped 13% to a level not seen for over 12 months.

Silver dropped 34% in three days, before rebounding nearly 14%. Gold was down 15% in four days. Mining company shares also fell — BHP Billiton reached a 14 month low, falling nearly 9% on the week.

Platinum is up 1.6% this morning.


If investors want stability they need look no further than Nestlé.

The company has just signed a loan with the lowest rate seen in Europe for more than four years — 10 basis points, 0.1%, above the European interbank rate.

The one year loan is for €4bn.

It seems Nestlé is a safer bet than most governments: it has a presence in most countries in the world, so has a portfolio of income streams that is not dependent on any one economy; it has a strong balance sheet, has not over-borrowed; and it operates in categories for which there is strong demand, food and confectionery — basic essentials and simple treats.

Stability, security and value come not from shiny metals like silver and gold that we all agree have collective value. Nor from industrial metals that are used in expensive, but unnecessary, luxuries.

AT&T, Walt Disney and Coca Cola also sold bonds this summer at very low effective interest rates.


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