Resources Hope: Greed and Fear

With the fall in Oil and Gold recently some traders have probably undertaken some profit taking strategies. There is still Hope for the Resources sector - the fall was governed by no more than "Fear" and "Greed". There may be more volatility in the forthcoming market sessions with fingers pointing to an amount of speculative money that was driving up oil, gold and base metals prices in the beginning of 2006. GSJB Were reckons not to lose hope on the resources sector.

Fundamentally, the resources sector has a strong foundation. The Chinese economy is especially strong and is set to deliver yet another year of explosive growth. GSJB Were also expects moderate demand growth for raw metals for the rest of the world in 2006. GSJBW reckons that there is no reason any indications in the markets in terms of extra supply would push the commodity markets back into surplus.

GSJBW's preferences lie with diversified resources companies like BHP Billiton (BHP) and Rio Tinto (RIO). They also have short term recommendations on the riskier pure play metal producers. GSJBW favours zinc producers
In a nutshell: GSJBW sees no reason for panic. The fresh sell-down will not turn into a much larger correction, and the strong commodity fundamentals still argue in favour of maintaining an overweight position for resources. The broker’s preference remains for the diversified resources companies. In Australia that means BHP Billiton (BHP) and Rio Tinto (RIO). Oxiana (OXR), Zinifex (ZFX) and Kagara (KZL). Go have a look at your charts.