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Gold rises amid trade tensions as China said to plan rare earth play

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Gold rises amid trade tensions as China said to plan rare earth play

Gold prices bounced back during the week ended May 31, helped by investor demand for safe havens as trade tensions between China and the U.S. intensified.

In addition to a surge in Chinese rare earth equities after President Xi Jinping visited a rare earth plant in the country's Jiangxi province, the commodity deck last week also saw shares of rare earth producers outside of China join the rally as Beijing kept hinting that it may retaliate against Washington by curbing exports of the strategic minerals. On May 29, the U.S. Defense Department said it was requesting new funding from the federal government to increase the production of rare earth minerals in the country and reduce reliance on China.

Shares of ASX-listed Lynas Corp. Ltd., the world's biggest rare earth producer outside of China, closed 11% higher at A$3.05 on May 31 after Malaysia's prime minister said the company could continue to operate its US$800 million Gebeng rare earth processing plant in the country. Malaysia had held back the process for renewing Lynas' license in December 2018 over concerns related to radioactive waste disposal. Junior company Rare Element Resources Ltd. saw its shares rise about 150% to 59.9 cents on May 29 from 24 cents the previous day. Canadian Hudson Resources Inc.'s shares rose after the company said it was seeking a partner to advance its Sarfartoq rare earth project in Greenland, which holds neodymium and praseodymium deposits.

Price ring

Gold prices recorded a weekly gain of 1.3% to close May 31 at US$1,302 per ounce. Silver and palladium prices were both 0.1% up to close the week at US$14.60/oz and US$1,337/oz, respectively, while platinum dropped 1.5% to US$794/oz.

Base metals took a hit with copper prices booking a weekly drop of 1.9% to close the week at US$5,822/t and nickel decreasing by 1.7% to US$12,140/t. Lead was 1% lower than the previous week, closing at US$1,798/t. Zinc fell 0.4% on a weekly basis to US$2,710/t.

Iron ore spot import prices for China extended gains to close the week 3.6% higher at US$98.90/t. Aluminum remained flat at US$1,762/t.

Talking points

Amid the recent rise in gold prices, Standard Chartered analyst Suki Cooper said gold prices are likely to remain "range-bound" in the coming weeks and believes that gold prices have held up well despite a strong U.S. dollar, forecasting a second-quarter average price of US$1,285/oz.

"Gold has faced headwinds in recent sessions, but we think gold prices have held up relatively well amid escalating trade tensions and USD strength," said Cooper. "While some of the price softness has been offset by weaker equity markets, gold has not benefited much from falling [U.S. Treasury] yields."

The analyst said the physical market has provided support on the downside, although the macro scenario continues to set the tone for trading the precious metal, noting price responsiveness shown by the Indian demand and increased central-bank purchases in April by Russia, Kazakhstan and China.

Despite the falling thermal coal spot price, BMO Capital Markets analysts wrote May 31 that the contract-based nature of purchases by Japanese utilities shows up in trade statistics. Japan's average customs value in April was US$118.70/t. Although BMO expects the average customs value for Japanese coal buys to drop in May, it is still likely to be almost twice that of delivered prices seen in Europe and China.

Financings

Teck Resources Ltd. signed a 12-year, US$2.5 billion limited-recourse project financing facility from a consortium of banks, which it will use to develop phase two of the Quebrada Blanca copper mine in Chile.

Russian steelmaker PJSC Novolipetsk Steel said a US$500 million placement of seven-year eurobonds was more than three times oversubscribed.

Yanzhou Coal Mining Co. Ltd. issued 3 billion Chinese yuan in short term bonds May 22.

Gold Fields Ltd. completed its previously announced buyback of US$250 million of its outstanding 4.875% notes due 2020 at 102% of par value.