Gold price surges as hedge funds wager $9bn on more gains

The gold price surged to the highest since January 2013 on Monday as retail investors and hedge funds piled into the safe havens to inoculate against growing panic about the spread of coronavirus infections outside China.

The gold price jumped out of the gate on the Comex market in New York touching a high of $1,691.70 shortly after the open, up $42.90 an ounce or 2.6% compared to Friday’s close. That was the biggest gain since June 2016, when Brits voted to leave the European Union.

Buying was especially heavy with contracts to deliver gold in April equal to more than 61m ounces traded by mid-afternoon. Gold was back to the low $1,670s later in the day, but bullion remains up more than $140 since the start of 2020.

Net purchases of gold-backed ETFs for more than 22 straight sessions have seen holdings reach record levels above 80m ounces in February.

Net purchases of gold-backed ETFs for more than 22 straight sessions have seen holdings reach record levels above 80m ounces in February. Large-scale investors like hedge funds or so-called ‘managed money’ speculating in gold futures have also built up massive bullish positions.

Ole Hansen, head of commodity strategy at Saxo Bank, says in a research note  hedge funds added 24% to net long positioning (bets that gold will be higher in future) last week.

Managed money bulls outnumber bears 9 to one and hedge funds now hold the equivalent of nearly $9 billion worth of bullion in nominal terms:

Gold’s accelerated rally to a seven-year high in the days following the reporting period is likely to have taken the net-long above the previous record of 292k lots.

With total holdings in ETF’s backed by bullion also hitting record highs, the combined ETF and fund long reached a record of 112 million ounces last Tuesday.

Gold price surges on pandemic shock to US economy

Seven straight sessions of gains lifted the gold price to a fresh 7-year high on Friday after renewed fears about the coronavirus sent investors scurrying for safe haven assets, equity markets fell and long-term US interest rates fell to a record low.

The gold price touched a new intra-day high of $1,652.10 on the Comex market in New York, up 2% or $32 an ounce from yesterday’s settlement and the highest level since mid-February 2013.

By midday trade already hit the highest volume for the year with more than 43 million ounces exchanging hands. Bullion is up more than $120 since the start of 2020.

The yield on the US 30-year bond fell below 1.9% on Friday, a record low, after business activity in the US shrank for the first time in nearly seven years due to the pandemic’s disruption of global supply chains and travel.

The IHS Markit purchasing managers’ index measuring composite output at factories and service providers fell below 50 for the first time since October 2013. Readings below 50 indicate contraction and usually predicts broader economic slowdown.

Record highs in major currencies

“The persistent, cold-blooded and measured shift in gold higher, despite the U.S. dollar, is telling,” Nicky Shiels, a metals strategist at Bank of Nova Scotia, said in an emailed message to Bloomberg News. “The breakout is warranted and has legs.”

Gold hit record highs in 10 major currencies including the euro, Australian and Canadian dollars, the Indian rupee and Brazilian real.

Ole Hansen, head of commodity strategy at Saxo Bank, says in a research note that gold is in a perfect storm of price supporting developments and significantly is reaching new highs despite the strength in the US dollar.

The normal negative correlation has broken down and this has led to some significant gains against most major currencies, said Hansen adding that gold priced in dollars is the currency furthest away from hitting the $1,921 per ounce record from 2011.

It is difficult to see what at this stage can halt or pause the rally, Hansen said. 

According to Bloomberg calculations holdings in physically-backed gold exchange-traded funds have climbed for 22 straight session, the longest unbroken run in the history of the industry.

Gold price at 7-year high as hedge funds, ETF investors pile in

Six straight sessions of gains pushed the gold price to a 7-year high on Thursday as retail investors and hedge funds continue to pile into the metal, as a safe haven asset.

The gold price touched a new intra-day high of $1,626.50 on the Comex market in New York in another heavily traded session of more than 37m ounces by mid-afternoon. 

Gold is up more than $100 since the start of 2020 and should the metal close above $1,620 an ounce it will be the highest level since mid-February 2013.

With the metal moving higher, despite the headwinds from other markets, it is difficult to see what at this stage can halt the rally 

The gold price usually moves in the opposite direction of the US dollar but gold’s rise this year has come about despite the strength in the greenback which is at multi-year highs against major currencies. 

Rising stock prices also act as a brake on gold price gains as investors move money into equities, but in 2020 gold’s rise is happening at the same time Wall Street is testing all-time highs. 

Ole Hansen, head of commodity strategy at Saxo Bank says in a research note that during January total holdings in physically-backed gold exchange-traded funds, already at record highs, rose by an average of 1.3 tonnes per day. 

So far this February holdings have – despite dollar strength and recovering markets – been rising by 1.9 tonnes per day according to Hansen:

With the metal moving higher, despite the mentioned headwinds from other markets, it is difficult to see what at this stage can halt or pause the rally. 

Large-scale investors like hedge funds or so-called managed money speculating in gold futures have also gone long gold.

Hansen points out hedge funds have maintained a net-long position (bets that gold prices will rise) of between 20 million to 30 million ounces since last October. 

The latest breakout is likely to attract fresh momentum buying which will be added to the 229,369 lots (22.9 million ounces) they held during the latest reporting week to February 11. 

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Tesla’s China surprise big blow for cobalt, nickel price bulls

Long-suffering cobalt bulls were dealt another blow on Wednesday after reports that the world’s largest electric carmaker is shifting some production of its most popular model away from batteries that contain nickel and cobalt.

In a surprise move China’s top battery manufacturer CATL will supply Tesla with  lithium iron phosphate (LFP) batteries for its Model 3 production at its newly built $2 billion factory outside Shanghai.

The Model 3 is Tesla’s most popular model and the US-made version uses the company’s nickel-cobalt-aluminum (NCA) cathode chemistry. Most other automakers favour nickel-cobalt-manganese (NCM) cathode chemistries.

Cobalt miners may make up some lost ground if the Model 3 proves popular in China, which accounts for half the world’s EV sales.

LFP batteries are cheaper than batteries using NCA and NCM chemistries but lack the energy density, reducing driving range. LFP batteries power almost the entire electric bus fleet in China and is popular for smaller city runabout vehicles where range is not an issue.

According to Benchmark Mineral Intelligence, a battery supply chain and price reporting company,  cobalt played no part in Tesla’s decision to use LFP cells:

The move is a specific strategy to balance the cost reduction of Model 3 with appropriate range and performance for China’s domestic market.

Benchmark believes LFP powered model 3s will qualify for China’s EV subsidies as range estimates with Tesla’s drivetrain efficiency will take it beyond the 250km (155 miles) threshold for the minimum subsidy payout of CNY 18,000 or roughly $2,600.

Benchmark estimates that the total cost saving for Model 3 made in the US using NCA cells will be in excess of 25%, but is unlikely that Tesla will produce LFP models outside China.

Cobalt miners may make up some lost ground if the Model 3 proves popular in China, which accounts for half the world’s EV sales. Tesla plans to use NCM 811 cells (~80% nickel, ~10% cobalt) supplied by LG Chem for its long-range Model 3s for the domestic market.

Benchmark domestic Chinese prices for cobalt sulphate jumped by more than 10% in January, to $6,900 a tonne. Measured from multi-year lows hit during the summer, prices for cobalt used in the battery supply chain have recovered 30%. 

Chinese nickel sulphate prices fell an average of 5.8% on the previous month in January according the Benchmark data, but at CNY24,500 ($3,500) ex-works >22% nickel content, prices are flat year-on-year. 

Gold price surge continues – Citi says next stop $2,000

Gold price set to close above $1,600 first time since 2013
Image: Adapted from Goldcorp video

The gold price jumped to a fresh near 7-year high on Wednesday as worries about the global economic impact of the coronavirus mutated into expectations of massive monetary stimulus to counteract the damage done in China and elsewhere.

Gold thrives when policy is loose and money is cheap, and usually moves in the opposite direction of interest rates. China is expected to pump billions into its financial system to revive its economy post-outbreak and most developed economies never emerged from the ultra-low (or negative rate) environment of the 2008 global financial crisis.

Even in the US economy, which is in much better shape than Europe or Japan, rate cuts before the end of the year are being priced in by markets.

CNBC reports US investment bank Citi believes the gold price will benefit from investors looking for yield and from buying related to the metal’s status as a haven in times of turmoil.

Citi has one of the more bullish forecasts out there – the bank believes gold could add another $100 an ounce within six months and top $2,000 per ounce in the next 12 to 24 months:

“Gold should perform as a convex macro asset market hedge, resilient during ongoing risk market rallies but a better hedge during sell-offs and vol[atility] spikes,” the analysts led by Ed Morse said.

Yesterday, on one of the busiest trading days of the year, April gold futures, the most active contract with nearly 40m ounces exchanging hands, gained $20 to close above $1,600 on the Comex market in New York for the first time since April 2013.

The rally continued on Wednesday with the metal touching a new intra-day high of $1,614.40 in another heavily traded session of more than 25m ounces by lunchtime. Gold is up more than $90 since the start of 2020.

BHP becomes the world’s largest copper producer

BHP Group on Monday became the world’s largest copper miner based on production after Chile’s copper commission announced a slide in output at state-owned Codelco.

Hampered by declining grades Codelco production declined by 5.6% or about 100,000 tonnes last year.

Overall, Codelco, nationalized in the early 1970s, churned out 1.706 million tonnes of copper, the lowest level since 2008, when output was at 1.55 million tonnes.

Codelco, nationalized in the early 1970s, churned out 1.706 million tonnes of copper, the lowest level since 2008.

At that time, the giant Ministro Hales mine, which contributes between 180,000 and 200,000 tonnes of copper a year, had not yet begun operation.

Last month, the world’s number one mining company, BHP (NYSE:BHP) reported robust six months to end December numbers from its copper operations, including at Escondida in Chile, the world’s largest copper mine.

For the first six months of BHP’s financial year, output was up 7% year on year to 885,000 tonnes with Escondida contributing more than 600,000 tonnes.

In the six-months to end-June 2019, Melbourne-based BHP produced 864,000 tonnes bring the calendar year output to 1.749 million tonnes.

The Anglo-Australian giant kept guidance for its 2020 financial year unchanged at between 1.705 million and 1.820 million tonnes.

BHP may struggle to hang onto the crown despite spending $2.5 billion to expand its Spence mine in Chile.

Freeport-McMoran’s Grasberg mine in Indonesia returns to full production after a transition to underground mining in 2022. US-based Freeport produced 1.47 million tonnes of copper in 2019.

Codelco itself is in the midst of an ambitious, 10-year, $39 billion investment drive to open new projects and overhaul older mines so it may well catch up too.

Copper price & coronavirus: Don’t expect small SARS-like impact

The copper price continued to recover on Thursday as investors bet on a quick bounce back in economic activity in China once the viral outbreak is brought under control.

After bottoming on Monday below $2.50 a pound, the lowest since May 2017, copper has rebounded by more than 5% to trade as high as $2.6225 a pound ($5,780 a tonne) in New York on Thursday.

In a note, Capital Economics says the gains may be speculative based on some investors’ conviction that the metal was oversold after falling through its 200-day moving average.

But, says the London-based independent researcher, “it is too early to call the bottom”:

If the 2002-03 SARS outbreak is any guide, China’s copper consumption could decline by roughly 500,000 tonnes as a result of the coronavirus.

That would be much larger than the deficit of around 100,000 tonnes we had expected in the copper market this year 

Corona is no SARS

There was little indication on Thursday that Beijing was close to ending the crisis as confirmed cases climbed to 28,060, suspected cases to 24,702 and the death toll topped 564, according to official media.

In a report, commodities research consultants Wood Mackenzie warns that comparisons to SARS may underestimate the impact on copper, which due to its widespread use in industry and construction, is vulnerable to broader economic weakness.

Today China is responsible for roughly half the world’s copper consumption, but in 2003 the country’s share was only 19%.

WoodMac also points out that SARS emerged as a national health emergency in April 2003, when most people had returned to their working cities from the Chinese New Year Holiday, minimizing disruption to industrial activity.

Another reason the current outbreak could have a larger impact is that disruption due to SARS was mainly focused on the Guangdong province and Beijing, but the coronavirus is now spreading to most of the country’s economic centres.

Cobalt price rebounds on Beijing stockpiling talk

Cobalt price rebounds on Beijing stockpiling talk
Hands up who wants to stockpile cobalt. (Dongtai Lu antique market figurines in Shanghai | Shutterstock)

Long-suffering cobalt bulls received some good news on Wednesday with new data showing prices for the battery raw material rebounding at the start of 2020.

According to Benchmark Mineral Intelligence, a battery supply chain and price reporting company,  domestic Chinese prices cobalt sulphate prices jumped by more than 10% in January to $6,900 a tonne. 

Measured from multi-year lows hit during the summer, prices for cobalt used in the battery supply chain have recovered 30%. 

Cobalt hydroxide and cobalt battery metal prices also improved at the beginning of the year during the month as Chinese battery manufacturers stocked up ahead of Chinese new year celebrations. 

With low stock process levels in China even a relatively short disruption beyond this date could have a significant impact on supply

The London-HQ researcher said sentiment has improved in China thanks to indications that subsidies for electric vehicles would not be cut again this year and persistent rumours that Beijing is poised to add substantially to stockpiles of the critical raw material held by its State Reserve Bureau.

China is responsible for every other EV sold around the world and changes to subsidies for hybrid and battery-powered vehicles – or new energy vehicles in local parlance – that came into effect mid-June had a dramatic impact on the domestic market.

Annual EV sales in 2019 dropped for the first time ever to 1.21m units, compared to 60% growth in the previous year.  

Benchmark notes growing concern about the impact of the coronavirus should activity be curtailed for a prolonged period after market activity restarts February 10: 

The current planned closure period is unlikely to affect logistics, but with low stock process levels in China even a relatively short disruption beyond this date could have a significant impact on supply.

Shaping supply

Annual cobalt production is only around 130,000 tonnes, mostly as a byproduct of nickel and copper mining. 

Some two-thirds of supply comes from the Democratic Republic of the Congo, where fears about political instability and the challenges of ethical sourcing combine to supercharge supply concerns.

Cobalt production in the DRC fell by just under 20% to 87,676 tonnes last year according to central bank figures released on Wednesday.

The central African nation announced last week the establishment of a  new state company to manage the country’s artisanally mined cobalt. 

The new company, Entreprise Generale du Cobalt, would be managed independently by state mining company Gecamines and could seek a private partner for the venture to help fund purchases from small-scale miners.

Benchmark estimates that in 2019, less than 10% of cobalt supply came from artisanal mining, but the figure fluctuates depending on the cobalt’s price environment.

Caspar Rawles, Head of Price Assessments at Benchmark said DRC artisanal cobalt production has historically acted as swing supply in times of market tightness, typically as a reaction to rising or higher prices:

“The government intervention in this supply chain may inhibit the ability of DRC supply to respond as quickly to market tightness, and may see higher prices sustained for longer in such times.”

Continue reading at Benchmark Minerals

Private capital raised for mining falls to 8-year low

According to a new report by private capital tracker Preqin, fundraising for mining and metals investment slowed dramatically in 2019, falling to an eight year low.

Aggregate capital raised to invest in farmland were 12 times that of mining, doubling from 2018 to $3.6 billion last year

Only four unlisted funds closed last year, raising a combined $300 million for investing in the mining sector. That’s down from $2.5 billion in 2018 and nowhere near the peak of 2012, when eight funds procured a combined $4.2 billion from so-called limited partners which include sovereign wealth funds, public and private pension funds, endowments, foundations and family offices.

Tembo Capital’s second mining fund accounted for the bulk of last year’s fundraising. The London-based fund which focuses on junior and mid-tier mining projects primarily in Africa closed on $177 million in March.

There are currently 14 funds are in the market targeting the mining sector, seeking a combined $7 billion in capital.

As of June last year mining and metals fund managers hold $4.9 billion in dry powder (funds ready to be deployed). These funds also hold $15 billion of investments in the sector that still has to be exited.

Mining’s performance last year is also in stark contrast to that of agriculture. Preqin data show aggregate capital raised to invest in farmland were 12 times that of mining, doubling from 2018 to $3.6 billion last year.

Overall natural resources – oil and gas, timberland, farmland, water and mines – fundraising by the private capital industry hit $109 billion in 2019, the second year in the triple digits.

Private capital for natural resources is dominated by North American oil and gas investment and Preqin also points out that 2019 totals are flattered by mega-infrastructure funds that also invest in energy.

The natural resources sector as a whole surpassed $750 billion in assets under management as of June 2019, but pure natural resources funds accounted for just $230 billion of that total. 

Lithium mining shares off to the races

Shares in lithium producers soared on Tuesday with the sector getting caught up in the investor enthusiasm for electric vehicle pioneer Tesla.

Tesla’s stock value has doubled since December and the company is now worth more than Detroit’s big three automakers – GM, Ford and Fiat Chrysler – combined. Only Toyota surpasses Tesla’s market cap of $161 billion reached on Tuesday.

Shares in US-based Livent jumped 17% in more than double the usual trading volume. The company spun out of chemicals giant FMC Corp in November 2018 has nearly doubled in value from the lows hit last summer, and is now worth $1.6 billion on the Nasdaq.

Investors who bought into Livent’s IPO in November 2018 are still nursing losses of more than 40%

Investors who bought into Livent’s IPO are still nursing losses of more than 40%.

Top producer Albemarle gained 11% on unusually high trading volume pushing the market value of the company to $9.5 billion in New York. Chilean giant SQM added 9.8% affording the company a market cap of $8.3 billion.

The advance in Tianqi Lithium’s stock was more modest, with the top Chinese producer up 4.5% at the close on the Shenzhen exchange. Punters bought and sold 162m of the company’s shares on Tuesday, more than five times the usual average.

Tianqi bought 24% of SQM two years ago for more than $4 billion, but is now struggling to repay debt incurred during the boom years to fund its expansion. The company’s market value is $6.2 billion, half of what it was worth at its peak in October 2017.

Improved market sentiment also spilled over to Australia’s hard rock miners with Galaxy Resources up 5% and Pilbara Minerals jumping 9%. Shares in Brisbane-based Orocobre trading in Toronto added 2.45%.

Lithium price languishing

Orocobre and Pilbara Minerals last week joined others with bearish outlooks for lithium demand, as weak orders from electric vehicle makers in China look set to extend a prolonged downturn.

Prices for lithium fell again at the end of last year according to the December price assessment released by industry tracker Benchmark Mineral Intelligence.

The Benchmark Lithium Index declined to its lowest point since January 2016 in December, down more than 36% on the start of the year. The weighted carbonate price fell to below $8,000 a tonne while hydroxide prices now average just over $10,000.

Hard rock miners have been hardest hit when the price of spodumene concentrate (6% lithium for hydroxide manufacture) fell another 3.5% during October to average $450–$510 a tonne. That is a 45% drop in the last year.