Weekly Mining Commentary

Author: Sid Rajeev, Head Of Research

Markets continued to rally based on encouraging developments surrounding vaccines in the past week. Sources indicate that the U.K. is expected to approve Pfizer’s (NYSE: PFE) vaccine within days. Moderna (NASDAQ: MRNA) stated that their first vaccine shots could be ready by December 21. In anticipation of approvals, pharma companies have already started preparations to distribute their vaccines. Goldman Sachs (NYSE: GS) came out with a projected vaccine timeline, which showed that half of the U.S. and Canada’s population will be vaccinated by April 2021, and 70% of the population in developed markets by Fall 2021.

Another positive development in the past week was that most of Europe, the U.S., and India experienced a decline in new cases. Brazil, Mexico, and Canada are on their second-wave and experiencing a surge in new cases.

Daily New cases in the US, India, UK, Brazil , Germany and Italy

Source: https://www.worldometers.info/coronavirus/

As a result of all the positive developments in the past week, stock markets and copper continued to gain strength. Not surprisingly, the US$, gold, and silver reported losses as demand for safe haven assets typically rises when there is global economic uncertainty and vice versa.

 

Five of the seven indices we track are up WoW (orange bars), and four are trading higher than pre-COVID19 levels (blue bars).

 

Current Vs Pre COVID-19 (as of Nov 30, 2020)

Source: FRC / Various

 

Copper inventory levels continued to decline on a WoW basis, both on the LME (London), and on the SHFE (Shanghai). We believe that China is the primary demand driver. China recently announced several positive macroeconomic data, including strong industrial production, retail sales, and lower unemployment.

 

LME Inventory (Nov 30, 2020)

Source: FRC / Various

SHFE Inventory ( Nov 27 , 2020 )

Source: FRC / SHFE

Inline with commodity prices, valuations of base metals increased, while that of gold declined in the past week.

Gold Producers Nov 30, 2020

Source: S&P Capital IQ & FRC

Base Metal Producers

Source: S&P Capital IQ & FRC

Gold Producers and Base Metal Producers

Source: S&P Capital IQ & FRC

 

As the rollout of vaccines is expected to take three to six months, we do not expect the economy to recover to pre-COVID levels until mid-2021. We believe that gold prices will remain volatile in the coming months, and gain strength in the second half of 2021, when inflation kicks-in from the stimulus packages and economic growth. We are raising our base metal price forecasts for 2021 based on positive developments surrounding vaccines. That said, we believe that the recent run-up in base metal prices is an overreaction. Our commodity price forecasts (unchanged) are shown below:

FRC Forecast (Nov 30, 2020)

Source: FRC

Weekly Mining Commentary

Author: Sid Rajeev, Head Of Research

Source: https://www.researchfrc.com/weekly-mining-commentary-43/