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Trump presidential win could push gold to US$1,850 an ounce

Industry Top Trends 2021: Metals and Mining

Greenhouse gas and gold mines Nearly 1 ton of CO2 emitted per ounce of gold produced in 2019

Essential Metals & Mining Insights - September 2020

Essential Metals & Mining Insights - August 2020


Trump presidential win could push gold to US$1,850 an ounce

The EuropeanCentral Bank's meeting last weekresulted in no changes in monetary policies for the eurozone and, for now, no extensionin the bank's asset-buying program. Global equities picked up on the news and finishedthe week at an eight-month high.

Meanwhile,nervousness around the next interest rate hike by the U.S. Federal Reserve has kickedin as the Open Market Committee is due to come together July 26 and 27. Expectationsare that there will be at least one more rate hike this year; futures markets arepricing in the probability of a December rate rise at 43%.

Alongsidestrong housing data, this sentiment helped strengthen the U.S. dollar, which reacheda four-month high against a basket of currencies July 20.

Price Ring

Despitethe strong dollar, most metals booked a good run in the week to July 22. In particularnickel and zinc continued to rally.

LME nickelfinished the week at US$10,420 per tonne, up from US$10,270 per tonne a week earlier,after testing a 10-month high of US$10,900 per tonne at some point. In a six-weekrun, the metal has shifted some 25% higher after top producer Philippines announceda clampdown on dodgy mining companies.

LME zincclosed at US$2,245 per tonne, up from US$2,204 per tonne the week earlier. Zinchas been the best performer among the major metals so far this year and at currentlevels is standing more than 40% higher than at the beginning of January.

Aluminumended at US$1,611 per tonne, down from US$1,659 per tonne on July 18, while LMEthree-month copper contracts finished at US$4,920 per tonne, a tick higher thanthe US$4,918 per-tonne mark it reached a week earlier.

Ironore 62% China Imp lost 0.89% over the week, closing at US$55.70 per tonne.

On theprecious metals front, palladium stood out with a 5.41% rise over the week to finishat US$682.00 an ounce, its highest in nearly 10 months. Over the same period, silverwas down 3% to US$19.59 an ounce, platinum lost 0.92% to US$1,082.00 an ounce, andgold slipped 1.12% to US$1,322.10 an ounce.

Talking points

Nonetheless,analysts remain upbeat on the long-term outlook for the precious metal.

In fact,ABN Amro strategist Georgette Boele forecast that gold could surge as high as US$1,850an ounce if Donald Trump wins the U.S. presidential election in November.

"IfTrump were to become President, gold prices will likely perform well, because weexpect that his policies will be inward looking and will weaken the fundamentalsof the U.S. economy," Boele stated in a July 22 note.

Trump'srhetoric and potential policy actions were considered as factors that could create"domestic and international uncertainty at best and upheaval at worst,"according to Boele. This in turn would weigh on economic growth and, hence, leadto a more substantial rise in gold prices toward US$1,850 an ounce in the comingyears.

However,the strategist assumed that there is a low probability of a Trump win. Her basecase scenario, a win by the Democrats, modeled in economic growth "below trend"and slight improvements as of 2017. Assuming inflation exceeding growth, negativereal interest rates and a negative longer-term U.S. dollar, Boele forecast a supportiveenvironment for gold.

"However,despite uncertainty on financial markets we don't expect a new major crisis in themaking. As a result, safe haven flows towards gold would likely be muted,"she noted. "All-in-all, gold prices will likely rise a[t] moderate pace towardsthe US$1,650 per ounce in the coming years."

Numisanalyst Jonathan Guy upgraded his long-term outlook for gold to US$1,400 an ounce,from previously US$1,350 an ounce. For 2016, he upped his estimate marginally toan average of US$1,295 an ounce, from previously US$1,285 an ounce.

Though,Guy said in a July 19 note that the current valuations of gold equities suggestedsignificantly higher gold prices had been priced in.

"[S]omevaluations look stretched relative to the last cycle. … This suggests that the equitiesare currently pricing in significantly higher gold … prices, including US$1,850/ozfor gold."

Guy saidthere were a number of potential catalysts for further upside to the gold price.Yet, he left the valuations of his gold equity deck unchanged.

Accordingto Guy, the parlous state of the Italian banking system, a "disorderly"Brexit and risks around nonperforming loans in the Chinese banking system couldfurther drive up gold price.

Equally,he mentioned further unrest in Turkey and security risks in East Asia in this context.

As faras the U.S. is concerned, a potential presidential win by Trump was once again namedas an event with potential for flight to gold, while a reduced likelihood of a U.S.rate hike could also boost the performance of the metal.

Executive Exchange

A gooddozen of companies announced changes in senior management in the week to July 22.

Amongthose was WAI Capital InvestmentsCorp., whose CEOGuy Duport and CFO and secretary Mathieu Charette resigned amid plans to wind down the company due to lackof capital.

COO Mark McAndrew is temporarilyleading the company after CEO Tarn Brereton diedin a suspected asthma attack.

's David Hodgehas handed over his responsibilities as interim president and to director Darryl Jones.

president, CEOand director David Adamson leftthe company to pursue other interests. Executive Chairman Richard Warke will assumethe duties of CEO in the interim.

ToddHanas was named as interimpresident and CEO of Golden Peak MineralsInc. following the resignation of Robert Coltura.

appointed Michael Love as president and CEO, and James Jensenas chairman, while Canex Energy Corp.named Sherman Dahl presidentand CEO.

Financings

Amongthe major financings last week was CenterraGold Inc.'s bought-deal financing,through which it raised net proceeds of C$185.7 million for its . Also in Canada, and ResourceCapital Fund VI LP closed an underwritten bought-deal offering to C$92 million, of which TMAC receivedC$60 million while Resource Capital Fund bagged C$32 million.

Kazakhstan-focusedEurasian Resources Group BVreached a deal that lifts the threat of bankruptcy three years after the companydelisted its London stock. The company agreed to restructure US$5.8 billion in debt with two of its major Russianlenders.

Meanwhile,Vedanta Resources Plcrepaid US$514.8 millionworth of 5.5% convertible bonds and, with the exception of one, has now repaid alloutstanding U.S.-dollar-denominated bonds due in the 2017 financial year.

a US$100 million five-year seniorsecured term loan acquired in June 2015.

gross proceeds of US$30 million ina two-tranche equity financing with MNGGold Jersey Ltd..

In Australia,Perseus Mining Ltd. A$102 million from an equityraising.

increasedthe price of H shares to be issued under its HK$4.15 billion private placement. Due to a change in conditionsof the issuance, shares are now priced at HK$8.26 each, compared to HK$7.87 pershare previously.

In Germany,Deutsche Rohstoff AG plansto redeem 50% of its outstanding2013/2018 corporate bond, which will leave around €15.8 million of the debt outstanding.