Weekly Mining Commentary
Global equity markets were up 2.5% last week (2.1% in the previous week) amid a dip in U.S. treasury yields. The U.S. Fed’s latest comments indicate that they are in no hurry to raise rates, as they believe that inflation is transitory. As mentioned last week, considering the weakness in key economic indicators, we believe rate hikes will be slower than market expectations. The Bank of Canada is expected to start raising rates in H2-2022.
We believe that inflation is unlikely to be transitory as U.S. M2 money supply is up 35% since the beginning of the pandemic. Prior to the pandemic, M2 had increased at just 6% p.a. in the last two decades. Note that rate hikes were unable to curb inflation during 2016-2019 (see charts below). Gold was up 16% during this period.
Copper and zinc prices retreated after reporting strong gains in the prior week. We believe that supply chain disruptions will support commodity prices in the near-term.
Valuations of gold producers were up 3% WoW; base metals producers were down 2%.
Last week, two (previously three) out of the 15 hardest hit nations experienced higher daily new COVID-19 cases. Two countries (previously one) experienced WoW increases in deaths. Globally, 48.66% have received at least one dose, up 1.05 ppt WoW vs 0.02 ppt the same time last week. 73.56% of Canadians are fully vaccinated (0.8 ppt vs 0.7 ppt) vs 66.77% in the U.K. (1.0 ppt vs 0.5 ppt), and 56.67% in the U.S. (0.4 ppt vs 0.6 ppt).
We believe vaccine hesitancy remains a major challenge for developed economies, even though vaccinated people account for a small share of new cases and deaths.
Distribution of confirmed COVID-19 cases reported to PHAC (Dec 2020 – Oct 2021)
We believe inflation, supply chain disruptions, and slow rate hikes will provide near-term support to commodity prices. We are maintaining our price forecasts.