Weekly Mining Commentary

Weekly Mining Commentary

Markets continued to rally based on promising developments surrounding vaccines in the past week. The U.K. is expected to start vaccinations tomorrow, while the U.S. is expected to start by the end of this week, and Canada by next week. Six of the seven indices we track are up WoW (orange bars), and four are trading higher than pre-COVID19 levels (blue bars).

Most of Europe and India continue to experience a decline in new cases, while Brazil, Mexico, and Canada are on their second-wave, and experiencing a surge in new cases.

A weakness in the US$ positively impacted metal prices in the past week.

Inline with commodity prices, valuations of both gold and base metal producers increased in the past week.

We believe the weakness in the US$ is a result of rising long-term inflationary expectations (as shown in the chart below), and the improving outlook for global economic recovery.

However, inflation rates declined in the U.S. in November, and are expected to decline again in December, as shown in the charts below. As a result, we expect gold prices to 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.

Copper inventory levels on the SHFE (Shanghai) increased for the first time, after six consecutive weeks of declines. We consider this to be an indication that copper prices are due for a correction.

Another reason for lower copper prices is that we do not expect the global economy to recover to pre-COVID levels until mid-2021, as the rollout of vaccines is expected to take three to six months. Unemployment levels in the U.S. and Canada remain high. As shown below, the rate of decline in unemployment was lower in November vs previous months. In addition, consumer sentiment in the U.S. declined in November.

We expect volatility in gold prices, and weakness in copper prices in the coming weeks. Our commodity price forecasts (unchanged) are shown below: