The price of gold soared in the first half of last week, and broke above US$1,300/oz on Wednesday following news that China had increased its gold holdings in March for the fourth consecutive month. The People's Bank of China raised reserves to 60.6 Moz as trade tension with the US drags on.
The precious metals retreated sharply, however, on Thursday, April 11, and closed the week in London at US$1,299, up only 1.2% on the previous Friday (the metal closed the week in the US even lower, at US$1,290/oz). Analysts attributed the retreat to an easing of Europe's Brexit crisis, but gold's decline came despite a big tumble in Chinese equities on Thursday — the CSI 300 index of major Chinese equities was down more than 2%, and the index fell slightly further on Friday.
Despite the recent lacklustre performance of gold, data released last week by JP Morgan showed that the metal represented the second best asset class in the 20-year period to end-2018. During this period, gold had an annualised return of 7.7%, with only real estate investment trusts (REITs) performing better, at nearly 10%. The S&P 500, by comparison, returned only 5.6% on an annualised basis over the past 20 years, with bonds returning an average of just 4.5%.
The World Gold Council (WGC) reported that central banks globally bought a net 51 t of gold in February, the largest monthly increase since October 2018. WGC notes that central bank gold holdings have grown by 90 t in the first two months of the year, compared with 56 t in the same period in 2018.
A report last week by S&P Global Market Intelligence (SPGMI) concluded that gold production increased in 2018 for the 10th consecutive year to total 107.3 Moz. Chris Galbraith wrote that although the year-over-year increase was under 1% (the smallest in the past decade) output has risen 40% since 2008. Gold production is forecast to grow a further 2.3 Moz this year (the strongest increase of the past three years). Looking at the current project pipeline, and without large-scale moves in the gold price, SPGMI expects gold output to stay steady until 2022.
The best performing major commodities last week were iron ore and copper, up 3.2% to US$95.8/t (62% Fe material) and 1.7% to US$6,509/t, respectively. Zinc was little changed at US$2,925/t but aluminium fell 1.3% to US$1,864/t and nickel slipped 0.3% to US$13,015/t. Oil saw its sixth successive weekly gain as falling OPEC production tightened global crude markets and offset concerns of slowing economic growth.
The latter was reflected last week by the International Monetary Fund (IMF), which cut its outlook for global growth to the lowest since the financial crisis. Amid a bleaker outlook in most major advanced economies, and signs that higher tariffs are weighing on trade, the IMF predicted that the world economy will grow 3.3% this year — down from the 3.5% the IMF had forecast for 2019 in January. If the prediction is accurate, the 2019 growth rate will be the weakest since 2009. This is the third time the IMF has downgraded its outlook in six months.
On Friday, April 12, the International Finance Corporation (IFC) announced an initiative to accelerate the growth of 'impact' investments. In a move that might assist infrastructure projects in developing countries, the IFC has created a framework of nine principles to guide investment decisions that aim to deliver benefits to society. A coalition of 60 asset managers and institutional investors have already signed up to the new standards.
The price of thermal coal has tumbled since the middle of last year, with the European benchmark falling below US$60/t, compared with over US$100/t in September 2018. There have been similar declines in the benchmarks in South Africa and Australia, and mirror falling natural gas prices.
A report last week by UBS noted that thermal coal has been weaker than expected this year, and prices are falling materially in most markets, excluding the domestic markets in Indonesia and China. Spot prices of thermal coal delivered to northern Europe at the Amsterdam, Rotterdam and Antwerp (ARA) ports have dropped about 40% from the average 2018 price of US$92/t. The ARA coal prices have been hit by record high port inventory, low natural gas prices, lower coal burn rates due to an unseasonably warm winter, strong renewables and increasing carbon prices.
Meanwhile, China (the world's biggest producer and consumer of coal) is set to lift output by more than 100 Mt this year, according to the China National Coal Association. More domestic production means China is importing less from overseas, and imports dropped to 23.5 Mt in March, down from 26.7 Mt a year earlier.
SPGMI reports that in March there was a continued decline in drilling activity and initial resource announcements but last month saw a strong recovery in gold and base metals financings. This meant that SPGMI's Pipeline Activity Index (a measure of the level and direction of overall activity in the commodity supply pipeline) rebounded to 73 from an almost three-year low of 64 in February.
Confirming fears that the prolonged slump in financings would result in decreased exploration, global drilling activity fell for a second consecutive month in March, with the total number of distinct projects reporting drill results dropping to 188, from 201 in February. This is the lowest number of projects reporting drilling since December 2016.
The number of initial resource announcements also slipped, falling from seven in February to six in March. Last month saw the announcement of two new mines and one expansion project.
Mine branding was the focus of last week's Picks and Blasts blog, and was in the news last week when the London Metal Exchange introduced a code of conduct for the first time in its 142-year history. The code, which sets out the exchange's values and conduct expected of its members, states that LME-branded events should not take place at venues which make participants uncomfortable (the Financial Times reminded readers that last year a member company hosted an event at the Playboy Club).
Corporate news last week included an announcement from Anglo American Plc that the US$3 billion Los Bronces copper expansion project in Chile will be cancelled if studies show that the project could harm nearby glaciers or if it faces opposition from local communities. The expansion is expected to increase annual output from the mine to about 400,000 t from 369,500 t in 2018.
In a sign of market trends, Hong Kong has overtaken Japan as the world's third largest national stock market (behind the US and China), with a total value of US$5.8 trillion.