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Weekly Mining Commentary

Weekly Mining Commentary

Global equity markets retreated last week primarily due to rising yields from a major sell-off in the bond market, amid expectations of an economic rebound and rising inflation expectations. As shown below, all the seven indices we track reported losses (orange bars). Rising yields typically result in lower equity valuations (from higher discount rates), and higher borrowing costs. The P/E ratio of the S&P 500 is currently 22.2x vs the long-term average of 15.3x (Source: Refinitiv). As we do not expect an economic recovery until H2-2021, we expect a market correction, and the P/E ratio to revert to its historic average.

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Weekly Mining Commentary

Global equity markets continued to rally due to a decline in new cases of COVID-19 in almost all of the hardest hit nations, and continued vaccine rollout. All the seven indices we track reported
gains (orange bars).

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Weekly Mining Commentary

Silver prices dropped 4% after a 13.5% gain in the prior week. As detailed in our report last week, the price run-up was instigated by retail traders on Reddit. As silver has relatively fewer short positions (compared to GameStop/NYSE: GME and AMC Entertainment/NYSE: AMC), we were not expecting the Reddit army to trade silver for too long. Base metals moved up due to the above-mentioned factors relating to equity indices.  

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Weekly Mining Commentary

Our outlook is improving because of the decline in new cases, and a pick-up in the pace of vaccine rollouts. Currently, 7.6% of the U.S. population has received vaccinations vs 5.3% at the same time last week. This compares to 13.7% in the U.K. (up from 9.4%). Israel continues to lead the pack at 35.6% (up from 29.5%).

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Weekly Mining Commentary

We believe there is a disconnect between market sentiment/valuations, and the surge in COVID-19 cases, and weaker than expected employment data in the U.S. Except for India and Russia, most of the hardest hit nations reported record-high numbers of new cases in the past week. For the first time during this pandemic, the U.S. reported over 300k new cases, and over 4k deaths, on a single day (January 8, 2020).

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Weekly Mining Commentary

Although the U.S., India, and Iran reported declines in new cases in the past week, most of Europe, Canada, and Mexico continued to experience a surge in cases. The newly emerged, and highly transmissible strain in the U.K. is concerning, but there is no evidence to suggest that the current vaccines will be less effective against the new strain.

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