Bumper Week for Metals

All of the major metals moved higher last week ahead of the G20 meeting in Japan, with gold and iron ore at new six- and five-year highs as interest rates continued to decline.

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For the first time since I started writing this weekly blog nine months ago, all of the major metals have recorded a week-on-week price increase. Helped by a slightly weaker US dollar and falling interest rates, even zinc improved (after seven successive weeks of decline), up 2.6% last week to close in London at US$2,493/t.

Nickel was the stand-out performer last week, up 4.7% to close in London at US$12,670/t. Iron ore's stellar performance since the deadly dam failure in Brazil at the end of January (and Vale's subsequent supply problems) slowed last week with the 62% Fe material up just 1.3% to a new five-year high of US$118.0/t (up almost 62% so far this year). Copper edged higher, closing up 0.4% on the week at US$5,990/t.

The price of gold also rose again, albeit only up 1.7% to US$1,403/oz at the London close on Friday. The precious metal reached a new six-year high of US$1,440/oz on Tuesday, but has since retreated, and was trading around US$1,410/oz on Saturday as the G20 group of world leaders met in Osaka, Japan.

In Australia, gold broke through A$2,000/oz on June 20, just as the Perth Mint celebrated its 120th anniversary. The metal peaked at A$2,049/oz five days later, and has retreated over the past few days to A$2,008. The precious metal also remains above £1,100/oz in the UK, having been only £970/oz at the start of May.

In US dollars, gold recorded one of its strongest monthly gains of the past decade, up 8.0% in June (but had fallen back below US$1,390/oz as the new month opened). Most analysts attribute the metal's recent price improvement to political factors and the sustained decline in interest rates. The former includes the ongoing trade dispute between the US and China, attacks on oil tankers in the Middle East and heightened tension with Iran (with the US imposing new sanctions at the beginning of last week). The move to lower interest rates has included the US Federal Reserve changing to a more dovish stance.

The relationship between the price of gold and negative interest rates is especially illuminating. As illustrated in the graph below, there are few better correlations.

With concern over economic growth in China and Europe, and the Fed hinting at a cut in US interest rates, bond yields are falling fast and 10-year German Bunds (the backbone of Europe's bond market) are trading at minus 0.33%. To cap a remarkable week, Austria has just issued a 100-year bond with a meagre fixed coupon of 1.1%. The Financial Times warned that the current crop of low-yielding bonds signalled "waning faith in central banks".

These lower yields (and so cheaper debt) has also boosted equity prices but the US dollar is proving surprising resilient. Indeed, the trade-weighted dollar index touched a 17-year high at the end of May. Nevertheless, the dollar has edged lower recently, and the euro is now at a three-month high against the US currency.

Reflecting the uncertainty in conventional assets (and Facebook's plans to launch its own digital coin), the price of bitcoin has soared to its highest level in 18 months after doubling since the start of May. Bitcoin is trading at around US$13,000 having risen 250% this year — twelve times the return of the next best performing currency or commodity, palladium. Bitcoin reached an all-time high of US$19,500 in December 2017.

On the mining corporate front, a landslide at Glencore's KOV copper-cobalt mine in the Democratic Republic of Congo is reported to have killed 43 illegal miners. The army had previously gone to the country's Tenke Fungurume mine to evict thousands of artisanal miners in what appears to be a growing problem in the DRC.

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.