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Weekly Mining Market Summary

After the excitement of recent months, the past week was relatively quiet for metals markets. There was little change in the price of any of the major metals, with the biggest movers being aluminum and iron ore (62% Fe), each of which improved by about 2%. Thermal coal, however, lost 4.8% after the gains of recent weeks.

The impact of a stronger U.S. dollar and rising bond yields saw gold weaken 0.8% over the week to close at US$1,164 an ounce.

On stock exchanges, U.S. equities climbed to a new record high, and European equities reached an 11-month peak. The latter comes despite the resignation at the start of the week of the Italian Prime Minister following the rejection of his bank restructuring program. The German and French stock exchanges have been especially strong thanks to improving trading fundamentals.

The most important market announcement came Dec. 8 with the European Central Bank's decision to scale back on the amount of bonds it buys every month to €60 billion from €80 billion, starting in April. The ECB stressed that this did not mark the beginning of the end of its quantitative easing program and extended the initiative by nine months to the end of next year.

The scaling-back decision sparked sharp swings on financial markets, with bond prices falling and the euro initially strengthening. This trend later reversed after a series of hands-on promises by the ECB's president, Mario Draghi, who said the central bank would remain active on the markets "for a long time" as "uncertainty prevails everywhere." Indeed, the reversal in sentiment was such that the euro eventually suffered its biggest one-day drop against the dollar since the U.K. voted to leave the EU.

Earlier in the week, China's central bank confirmed that the country's foreign reserves fell nearly US$70 billion in November. This is the fifth consecutive month of falling reserves at the People's Bank of China. Foreign reserves have fallen to US$3.05 trillion as the government has sought to defend the renminbi in the face of an accelerating capital outflow. Because of this, analysts predict that Beijing will continue to tighten capital controls.

The global stock of negative-yielding debt fell from US$13.44 trillion in mid-August to US$10.79 trillion at the end of November, according to Tradeweb. This underscores the dramatic selloff in bonds, with 40% of the US$2.65 trillion decline occurring in November alone. The rout has seen a jump in bond yields, which move inversely to prices. For example, the German 10-year bund had a yield of 0.33% last week, compared with a low of -0.19% in mid-year.

On Dec. 14, the Federal Reserve Open Market Committee is widely expected to announce an interest rate increase of 25 basis points for its Federal Funds Rate, from 0.50% to 0.75%. However, of greater importance will be the tone of Fed Chair Janet Yellen's comments after the two-day meeting. At the moment, two further increases are expected next year.

If the Fed interest rate is increased it will only be the second hike in a year. The rate was zero from December 2008, when the interest rate was dropped from 1.0%, to December 2015, when it was increased to 0.25%. You have to go back over ten years for the previous increase, which was from 5.0% to 5.25% in June 2006.