Gold is Cocked and Loaded

Gold has reached a six-year high on a US announcement that it is "cocked and loaded" for an attack on Iran. Meanwhile, the price of iron ore is at a five-year high as supply problems continue in Brazil.

Like Comment

As the new week begins, gold has broken through US$1,400/oz to reach a six-year high. The precious metal soared in the second half of last week, and closed in London on Friday at US$1,380/oz, up 3.3% over the week as tension rose between the US and Iran following the attack on oil tankers. The mood was not helped by President Trump saying the US had been "cocked and loaded" for missile strikes.

The price of iron ore also continued rising last week because of new assessments of the mine-supply problems in Brazil. Iron ore (62% Fe) jumped 6.4% in London to close at US$116.4/t. The metal is at a five-year high, having reached an all-time peak of US$190/t in February 2011, and an all-time low of under US$40/t in December 2015.

Indeed, with the exception of zinc, last week was a positively robust one for all of the major metals. Zinc fell for the seventh successive week, down 1.1% to close in London on Friday at US$2,430/t, compared with US$2,635/t on May 10. There were robust performances elsewhere, however, with copper up 2.7% to US$5,965/t, nickel improving 1.7% to US$12,105/t and aluminium rising 0.3% to US$1,765/t.

All metals have benefitted from a weakening US dollar, and gold has had the added advantage of trade tension between the US and China, instability in the Middle East, and signals from the US Federal Reserve at a meeting on Wednesday that it was open to cutting interest rates amid concern over US economic growth. The Fed cited rising global uncertainty as a reason to start lowering US interest rates, and signaled a strong possibility of a cut this year. As a result, the S&P 500 equity index hit a new record high.

The precious metal has also been aided by plunging bond yields, with the value of negative-yielding bonds jumping to US$12.5 trillion after the European Central Bank hinted that it could restart its 'quantitative easing' programme.

Global Market

A survey of fund managers by Bank of America Merrill Lynch has concluded that investors are at their most bearish since the global financial crisis. The list of worries is headed by a trade war and economic downturn. Allocations to equities is at its lowest level since March 2009, while funds held in cash and allocations to bonds are at their highest levels for eight years.

The Financial Times described the modest signs of economic improvement in the eurozone as "feeble". The latest monthly poll of purchasing managers edged only slightly higher at 52.1, and remains barely above the crucial 50 level that separates expansion from contraction.

There has been a boost for beleaguered coal miners, however, following news that the Trump administration has overhauled emission rules for power plants. New Affordable Clean Energy rules from the Environmental Protection Agency push coal-fired power stations to become more efficient, but will be applied to individual plants, rather than (as under the Obama administration) against the whole sector. The change in approach by the EPA is being attributed to President Trump's hopes of reviving the US mining industry. The Bureau of Labor Statistics calculates that there were 52,800 people employed in US coal mining in May, up 1,800 since Mr Trump's inauguration in January 2017.

In the latest sign of pressure to reduce operating costs in the US coal industry, two of the country's largest mining groups, Peabody Energy and Arch Coal, last week announced plans to combine their assets in Wyoming and Colorado. The companies hope that the joint venture will save an annual US$120 million.

Meanwhile, Acacia Mining has rejected the claims of its largest shareholder, Barrick Gold, that the current mine plans for the gold operations in Tanzania are not appropriately risked. The company remains embroiled in a dispute with the government over unpaid taxes, and has not been able to export gold for over two years.

Chris Hinde

Chief Commentator, Mining Beacon

Previously editorial director of Mining Journal, and more recently head of S&P Global Market Intelligence's metals and mining team, Chris is now Mining Beacon's editor-in-chief and lead commentator. He posts two blogs every week, one on Monday reviewing market conditions over the prior week, and a second on Thursday looking at issues on the global mining scene. There is also a quarterly blog on business opportunities in the sector.