Weekly Mining Commentary

Global equity markets were down 0.3% last week (down 2.5% in the prior week) amid uncertainties from the emergence of Omicron and the U.S. Fed’s hawkish remarks last week.

Source: FRC / Various

 

Although Omicron has now spread to 47 countries globally, preliminary indications suggest that this highly mutated variant is less dangerous than Delta. South Africa is experiencing a spike in daily new cases, but the number of daily deaths remain flat.

Last week, five countries (previously five) out of the 15 hardest hit nations experienced higher daily new cases. However, only one country (unchanged) experienced a WoW increase in deaths. Globally, 55.04% have received at least one dose, up 0.8 ppt WoW vs 0.9 ppt the same time last week. 76.44% of Canadians are fully vaccinated (0.3 ppt vs 0.4 ppt) vs 68.21% in the U.K. (0.3 ppt vs 0.2 ppt), and 59.47% in the U.S. (1.6 ppt vs 0.1 ppt). African nations are severely under-vaccinated primarily due to a lack of vaccine supply; South Africa is at 24.90% (two doses), Nigeria (1.70%), Egypt (14.88%), and Ethiopia (1.23%).

Source: Our World in Data / FRC

 

Source: Our World in Data / FRC

Metal prices retreated as well even though inventory levels of base metals declined both on the LME, and the SHFE (Shanghai).

 Source: FRC / Various

 Source: FRC / Various

 Source: FRC / SHFE

Valuations of gold producers were down 2% WoW; base metal producers were up 1%.

Source: S&P Capital IQ & FRC

Last week, both the U.S. and Canada reported positive jobs data. Unemployment levels are reaching pre-pandemic levels. Typically, strong economic data are catalysts for equity markets. However, in the current environment, strong economic data is negative for equity markets as central banks will be prompted to raise rates sooner.

Weak manufacturing data from China has confirmed that the country’ economic growth is slowing. In addition to Evergrande (HKG: 3333), another real estate developer is currently facing a liquidity crisis. A ripple effect will severely impact China’s growth.   

Source: Trading Economics

Bottom line, if Omicron is not as troublesome as the Delta variant, we believe rate hikes will be quicker than our previous expectations, especially considering the strong jobs data and the Fed’s statements last week. That said, real rates are negative in the U.S. As the Fed is unlikely to make large rate changes, we believe real rates will be low through 2022, as inflation is likely to persist due to increased money supply and the temporary supply crisis.

We are maintaining our price forecasts, and expect gold/silver to outperform base metals in the near-term. The recent fall in crypto prices will also prompt a segment of investors to move back to gold/silver.

Source: FRC