Last week, the U.S. Federal Reserve's Open Market Committee eventually raised interest rates from 0.25% to 0.50%, with a target range of 0.50% to 75%. While the move was widely expected, Fed chair Janet Yellen surprised markets by signaling three interest rate rises in 2017, rather than the two increases suggested at the FOMC's meeting in September.
The central bank's more hawkish tone was widely down to uncertainties around economic policies once President-elect Donald Trump takes office next year. It emerged that four of the overall 12 FOMC members feel "Trumponomics" would justify three instead of two hikes in 2017.
The Fed's interest rate increase prompted a steep climb in the U.S. dollar, which hit a new 14-year high and in turn weighed on gold and most other mined metals.
Bank of America Merrill Lynch's Dec. 15 Flow Show indicated a "great rotation" theme, with weekly equity inflows reaching US$21 billion, the ninth-largest number so far, while bonds and gold continued to see outflows of US$4.4 billion and US$700 million, respectively.
Separately, the bank's latest Global Fund Manager Survey showed that sentiment is becoming more bullish amid expectations of above-trend growth and inflation at five-year highs. Global profit expectations have reached a six-year high.
Responses from money managers also indicated that allocation to commodities has improved to a four-year high, with a net 5% of them saying they are overweight on commodities, compared to a net 2% being underweight in the previous month.
Most major metals booked losses last week, with copper down 2.4% to US$5,683 per tonne, nickel losing 1.5% to US$11,250 per tonne, and iron ore and aluminum both down by 0.2% and 0.4%, respectively.
Among the precious metals, silver and gold both felt the pain of the strengthening dollar, with silver losing more than 4% to US$16.1 per ounce and gold retreating nearly 2% at US$1,138 per ounce.
Zinc was the big exception, as it finished the week 3.9% in the green at a level US$2,800 per tonne.
Unsurprisingly, mining equities retreated from the high levels they had reached earlier this month, with some shares falling by double-digit percentages.
Numis Securities trimmed its outlook for gold and silver miners in light of more headwinds from the U.S., in particular the strengthening dollar.
The firm cut its 2017 and 2018 gold price estimates by 7% to US$1,250 an ounce and to US$1,300 an ounce, respectively, while trimming its 2019 forecast by 4% to US$1,350 an ounce. However, Numis retained a long-term gold price estimate of US$1,400 an ounce, though, this is now assumed to from 2020, compared to previously 2019.
Silver is now being guided with a US$17.80 an ounce in 2017, compared to previously US$18.88 an ounce, while 2018 estimates were cut to US$18 an ounce from US$25 an ounce. The 2019 silver price was revised to US$22 an ounce from US$25 an ounce. The team retained its long-term price of US$25 an ounce from 2020.
"We have marked to market our gold price assumptions for [the fourth quarter] in expectation of weaker pricing to persist into the [year-end] following [a] hike by the Fed," the team said in a Dec. 14 note. "Whilst we forecast a seasonally driven recovery in [the first quarter], this should be more muted than in 2016 as we expect weaker [year-over-year] ETF inflows and for demand from both India and China to continue to be negatively impacted by policy action to limit imports by their respective governments."
Gold and silver prices have continued to weaken in the past weeks. However, gold is still up 9% in the year-to-date, while silver has booked a gain of 23%.
As a result of the adjusted price forecast, Numis lowered the average dollar-denominated net asset value of the producers within its coverage by 5.6%, while cutting average 2016 EPS estimates by 4.6% and 2017 EPS estimates by 20.7%.
"[O]n average our target prices have decreased by 10.0%," the team stated. "At present the average U.K. listed gold and silver miner is trading on a NAV [multiple] of 0.96x compared to the five-year trailing average of 1.25x. We have moved Centamin Plc and Fresnillo Plc from a hold to a buy on unchanged multiples, given the upside to our price targets, and downgraded Hochschild Mining Plc from an add to a hold for the same reason."
Numis named Randgold Resources Ltd. and Acacia Mining plc as preferred larger producers, Pan African Resources Plc and Highland Gold Mining Ltd. as its preferred AIM-listed miners, and Dalradian Resources Inc. and Condor Gold Plc as its preferred explorers.
Major management changes last week included the appointment of Byron Coulthard as president, CEO and director of True Grit Resources Ltd., replacing Doug Fulcher, who remains a director of the company.
Atlas Iron Ltd. named Cliff Lawrenson as managing director and CEO, effective Feb. 1, 2017.
Meanwhile, Charbel Nader became chairman of New Talisman Gold Mines Ltd., following into the footsteps of Murray Mckee, who has stepped down from the role due to increasing overseas family and business commitments.
Metallica Minerals Ltd. also had a change in chairmanships, with Peter Turnbull succeeding the retiring chairman Barry Casson.
One of the bigger financing deals last week saw HudBay Minerals Inc. closing its note offer of US$1.0 billion aggregate principal amount of senior notes, at US$400 million worth of 7.25% senior notes due 2023 and US$600 million worth of 7.625% senior notes due 2025.
According to the company, an aggregate principal amount of US$803.6 million, which is 87% of the company's outstanding US$920 million worth of outstanding 9.5% senior notes due 2020, was validly tendered.
Mining major Glencore Plc increased the maximum debt buyback tender offer to US$1.14 billion of its outstanding notes, up from the previous US$1 billion maximum offer.
MMG Ltd. raised about HK$3.97 billion through an underwritten 1-for-2 rights offering of 2,645,034,944 shares. The offering was 6.5 times oversubscribed.
Fortescue Metals Group Ltd. is set to pay off a further US$1.0 billion of debt, decreasing its annual interest payments by around US$38 million and cutting its debt-to-equity to below target.
Sinosteel Corp. launched a private placement 56,090,146 shares to raise 802.6 million Chinese yuan to improve liquidity and lower financial risks.
KAZ Minerals PLC secured a new US$300 million credit facility with the Development Bank of Kazakhstan JSC to fund the completion of the Aktogay copper project in Kazakhstan.
Meanwhile, PJSC ALROSA repaid a US$370 million bank loan to JSC UniCredit Bank received in April 2014, bringing down the company's debt to US$2.3 billion.
Yunnan Tin Co. Ltd.'s subsidiary Yunnan Tin Trading Shanghai Co. Ltd. plans to apply for bank loans totalling 400 million Chinese yuan, with Yunnan Tin acting as the guarantor.