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Gold climbs amid Middle East tensions while base metals drop

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Gold climbs amid Middle East tensions while base metals drop

Precious metals had a positive run in the week ended Jan. 3, with gold hitting its highest in more than three months amid market uncertainty fanned by developments in the Middle East.

U.S.-Iran tensions escalated following the assassination of Qassem Soleimani, a leading Iranian military commander, who was killed Jan. 2 in a U.S. airstrike at the Baghdad airport.

In the U.S., minutes of the December 2019 Federal Open Market Committee meeting released Jan. 3 suggest Federal Reserve policymakers are comfortable with keeping interest rates unchanged for a time. The minutes showed Fed officials believe that the rates are likely to stay at current levels unless the officials see a "material reassessment" of their economic outlook, but they hinted at some disagreement over how long they should keep interest rates low.

Global stocks rallied on the first trading day of 2020, with China's central bank looking to free up 800 billion Chinese yuan of liquidity for the financial system to improve the country's economic growth. The People's Bank of China said Jan. 1 that it was further cutting banks' reserve requirement ratio by 50 basis points, which brings the reserve requirement ratio for big banks to 12.5%, Reuters reported. The move came as Washington and Beijing are slated to sign the "phase one trade deal Jan. 15 in a partial relief from the ongoing trade war between the two countries that resulted in tariffs on billions of dollars of goods traded by both sides.

Price ring

Gold extended its gains during the past week with a sharp increase Jan. 3. Booking a 2.4% weekly increase, spot gold on the London Metal Exchange closed at US$1,549.70 per ounce Jan. 3. Other drivers boosting the precious metal's price included the weakening U.S. dollar. Silver gained 1.3%, ending the week at US$18.10/oz.

Most of the industrial metals dipped during the week. IHS Markit and Caixin data showed slower manufacturing activity growth for the Chinese and U.S. manufacturing sectors in December 2019. Copper dropped 2.2% to US$6,075 per tonne from the previous week's close. Lead and zinc decreased 1.0% and 0.6% on a weekly basis to US$1,889/t and US$2,282/t, respectively. Nickel fell to US$13,735/t from US$13,995/t, a weekly drop of 1.9%.

Aluminum fell 1.7% to close the week at US$1,757/t.

Iron ore rose on expectations of weaker supply in January and improved market sentiment. S&P Global Platts assessed the 62% Fe Iron Ore Index at US$93.90 per dry metric tonne Jan. 3, up 3.8% from US$90.50/dmt the previous week.

Talking points

While the recent geopolitical risks and a possible retracement in the U.S. dollar are expected to provide support for gold prices, there might still be a correction in the market, according to a Jan. 3 note by Rhona O'Connell, head of market analysis for EMEA and Asia regions at INTL FCStone. O'Connell believes that the markets are overall "unsettled" for now and the physical market is still "sclerotic," adding that "it is nevertheless perfectly possible that this move will not go much further in the short term."

O'Connell also highlighted Indian gold imports — which are at a three-year low due to higher prices, an increase in import tax and tightened regulation on importing gold — as a negative factor for gold demand.

Financings

Cordoba Minerals Corp. said it expects the previously announced C$11 million equity investment to fund its San Matias copper-gold-silver project in Colombia by Chinese mining contractor JCHX Mining Management Co.Ltd. to close later this month.

Copper-gold producer Titan Minerals Ltd. entered into an unsecured debt facility of US$10 million with RM Hunter Fund Pty. Ltd.

Para Resources Inc. seeks to raise up to C$5.0 million through a nonbrokered private placement. It will use the proceeds for general corporate and working capital purposes and for work related to the company's projects.

European Lithium Ltd. agreed to a two-year debt facility of €7.5 million, enabling it to complete the definitive feasibility study for its Wolfsberg lithium project in Austria.

As of Jan. 3, US$1 was equivalent to 6.97 Chinese yuan.

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.