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Metals end volatile ride, bounce back into growth territory

As widely anticipated by global markets, the U.S. Federal Reserve last week raised interest rates by 0.25% to a range of 1.25% to 1.5%.

The Fed also revised its growth expectations for 2018 upward to 2.5%, from 2.1%, referring to a solid job market and growth in household and business spending.

While the central bank predicted stronger economic growth for the next three years, its chair, Janet Yellen, stressed that this anticipation was based on various factors and "should not be viewed as an estimate of the impact of the (US$1.5 trillion) tax package" the Trump administration looks to push through.

Gold prices held up well despite the rate hike and recorded their first gain in four weeks.

Typically, higher interest rates boost the U.S. dollar and equities markets but make gold less appealing. However, markets had long awaited last week's hike and priced it in.

In a separate development, a U.S. appeals court upheld a ban imposed by the previous federal administration on new uranium mining claims in the Grand Canyon area.

Encouraging data from China benefited metals prices at large, and copper in particular, as the country's industrial output in November rose 6.1% year over year. The reading indicated firm industrial activity, pointing to strong demand in commodities top consumer China.

Price ring

After weeks of losses, metals prices bounced back into growth territory.

Copper and nickel gained steeply by 4.9% and 5.8% on a weekly basis, respectively, finishing the week at US$6,855/tonne and US$11,522/t.

Zinc and lead both edged higher by more than 3% to US$3,205/t and US$2,511/t, respectively, while aluminum was up 2.2% at US$2,036/t.

Precious metals also gained pace, withstanding the stronger dollar. Gold increased by a marginal 0.6% to close at US$1,256/oz, and silver hit US$16.1/oz, a 1.2% gain.

Iron ore climbed 2.1% to US$67.4/t over the week.

Talking points

After a sluggish run in recent weeks, gold prices are set to edge higher again in the year ahead and are expected to average at least US$1,300/oz, according to separate notes by Numis Securities and RBC Capital Markets.

The latter predicted a strong first quarter of 2018 to end weeks of bearish bias that recently weighed on gold. Amid measured price increases and further upside risks, RBC said Dec. 18 that it expects gold to average US$1,303/oz in 2018, nearly US$50/oz higher than the average US$1,256/oz it predicted for 2017.

"The most recent weakness was not just seasonal but also driven at least partially by a continued rally in equities, the Fed rate hike, and weaker than normal physical demand in key regions like India," the team said in its Commodity Strategy paper.

The bank's 2018 forecast is slightly higher than market expectations, which the analysts said had become "a bit too negative."

According to RBC, supply-side fundamentals are set to remain stable in 2018, while there will be notable changes in gold demand on the back of higher volumes for jewelry and bar and coin demand.

Numis Securities also expects the gold price to be "incrementally stronger" in 2018, averaging US$1,300/oz, supported by continued weakness of the U.S. dollar compared to the euro as well as higher inflation and benign conditions in the key Asian physical markets.

"We expect gold to perform relatively strongly in [the first quarter of 2018] post the December Fed rate hike supported by the tail end of the Indian wedding season and Chinese New Year," Numis said Dec. 15. "Gold has moved up in January in five out of the last seven years, rising by an average of 3%, typically supported by buying ahead of Chinese New Year and the tail end of the Indian wedding season."

Beyond 2018, Numis expects gold to average US$1,350/oz in 2019 and US$1,400/oz as of 2020.

Financings

Vedanta Ltd. was among the players with major financing deals last week, announcing plans to raise 5 billion Indian rupees, or about US$78 million, via the issuance of secured, nonconvertible debentures.

SunCoke Energy Partners LP and its subsidiary SunCoke Energy Partners Finance Corp. priced a private offering of an additional US$70 million aggregate principal amount of their 7.5% senior unsecured notes due 2025. The new notes will be issued at a price equal to US$104.25 of the principal amount thereof, plus accrued interest from Dec. 15, resulting in a yield to worst of 6.565%.

Hunan Gold Corp. Ltd.'s parent company, Hunan Gold Group LLC, secured approval from authorities to issue convertible bonds of up to 1.2 billion Chinese yuan, or about US$181 million, within the next 12 months.

AMG Advanced Metallurgical Group NV mandated HSBC and Citi to raise US$500 million in new credit facilities, comprising a seven-year, US$300 million term loan B and a US$200 million revolving credit facility, amid plans to build a second lithium concentrate plant at its polymetallic Mibra mine in Brazil. The new credit facilities are expected to be finalized in the first quarter of 2018 and will be used to refinance an existing term loan and fund incremental CapEx.