Gold falls amid expectation of faster US rate increases
Bengaluru — Gold prices fell slightly on Wednesday, extending the decline from the previous session, as investors interpreted comments from Federal Reserve chairman Jerome Powell to mean that the US may raise interest rates more frequently than expected this year.
Spot gold was 0.1% lower at $1,317.01/oz at 5.06am GMT. Gold closed down 1.1% and fell to as low as $1,313.26/oz in the previous session, the lowest since February 9.
US gold futures were flat at $1,318.50/oz.
“We might be entering a short-term period in the gold market where we could see more dollar strength, higher bond rates and a return to equity weakness, a familiar backdrop that could pressure gold lower,” INTL FCStone analyst Edward Meir said in a note.
The dollar index, which measures the greenback against a basket of six major currencies, rose on Tuesday to its highest since February 9 after Powell gave testimony to the US Congress that indicated the possibility of four interest rate increases this year rather than the three that market participants are expecting. The dollar index was up 0.1% at 90.427 on Wednesday.
The stronger dollar and the potential for higher interest rates reduces demand for non-interest bearing gold as the metal becomes more expensive for investors paying in other currencies and as they seek higher returns in other assets.
However, investors might be looking at gold to hedge an expected increase in inflation as the global economy grew, said a Hong Kong-based gold trader. Powell noted in his speech that recent data had strengthened his confidence in inflation.
“People are looking to buy gold on dips so I think it will be supported down at $1,300,” said the trader.
Spot gold was expected to break a support at $1,317/oz and fall more to the next support at $1,303, as suggested by its wave pattern and a projection analysis, said Reuters technical analyst Wang Tao.
Meanwhile, Asian shares extended losses on Wednesday and bonds were sold off as weak factory data from China revived the worry about global economic growth, adding to the negative market sentiment triggered by Powell’s speech.
Among other precious metals, silver fell 0.3% to $16.37/oz.
Palladium was up 1% at $1,045.74/oz while platinum fell 0.5% to $981.20/oz, after dropping to a two-week low of $975.50.
Apple’s surprising cobalt move signals a controversial buy on metal commodities
* Apple took markets by surprise when the iPhone maker said it would try to directly buy cobalt from suppliers.
* Cobalt is one of the most important metals in battery production.
* Investors can read the Apple move as a sign that commodities remains one of the financial markets better trades.
* But there’s a non-financial price that investors must be willing to pay.
Guest Contributor | Mitch Goldberg
If you have not seen Black Panther yet, I’m not giving anything away by telling you that Wakanda, the make-believe country in Africa where it is set, sits in a mountainous region where the imaginary metal vibranium is plentiful.
This metal is both very rare and special, and it has allowed Wakanda to develop into a hidden, technologically advanced society. Aside from its deep social undertones — colonialism, oppression, slavery, nationalism and, most importantly, that a black child could see a superhero who looks like him or her — the movie got some play in financial press when Apple announced last week it had entered into talks directly with miners of cobalt.
Cobalt is super-important in the production of batteries for cellphones and electric vehicles. If Apple or one of its competitors couldn’t get it, it would be at a major disadvantage — no more batteries to power their products. Hence, cobalt has gone mainstream as an investment opportunity, despite its substantial rise in price over the years. Roughly half of cobalt’s production comes from the wartorn northwest corner of Democratic Republic of the Congo, a country with severe human rights violations, dangerous mining operations and terrible child labor conditions.
Gold and other mineral deposits, which are numerous in the volatile northeast of The Democratic Republic of Congo, have become a catalyst to much of the conflict there. Numerous militias and warlords have vied for control of the mineral-rich eastern Congo for decades, creating instability and continued bloodshed.
Apple is looking to lock in supplies, as well as buy from suppliers that are less controversial, but as an investment professional, I have to tell you that the Apple headline also sends an amoral message to those trying to figure out what securities in this market still have room to run: global commodities.
Another metal used in batteries for cellphones and EVs is lithium, the lightest of metals. Too bad it isn’t very stable and can burn. This is where metals like nickel — one of the main sources of cobalt — comes in. Quality batteries for portable devices is about finding the right mix of metals and chemicals that optimize both holding a charge and stability. Cobalt affects the time it takes to charge a battery, its energy density, stability, and it is the main component of the battery cathode. Cobalt is the primary material in the cathode, the most expensive part of the battery, and also where experts believe there is the greatest potential for battery improvements.
Betting on any commodity has risks, particularly volatility. Nowhere in market is the supply-vs.-demand rule more pronounced than in this asset class. Fortunes are made and lost, and long-standing industries rise and fall.
Due to bone-crushing drops in the price of gold, silver, oil and other commodities in the ’80s and ’90s, mining companies either underinvested in new production or shut down mines altogether. For a long while, this left the world with supply constraints. The mining industry, after years of running full-out to increase production, has caught up to demand with many major commodities. Oil is an especially key example, via shale production.
Lithium and cobalt may be “new school commodities” but they are no different than other commodities in being subject to the laws of supply and demand. What could change its current condition of tight supply and strong demand? New mines in friendlier places could be discovered. Chemists could come up with replacements for cobalt or at least find ways to use less of it. But those two things look a long way off.
The handful of ETFs that track the stocks of metals and rare earth metals are near their 52-week highs — the VanEck Vectors Rare Earth/Strategic Metals ETF, Global X Lithium & Battery Tech ETF, iShares Global Metals & Mining Producers ETF and SPDR S&P Metals & Mining ETF.
Trading on Tuesday after the first testimony from new Federal Reserve chairman Jerome Powell dinged metals ETFs, but these new-school metals trades are based on the long-term growth trend of electrification of mobile devices and automobiles. Even robotics will need more and that is what I’d consider an industry of the future. It’s clear that investors are optimistic about the sector. But investors need to go into any market position with eyes wide open: There has never been a time in recorded history when production doesn’t eventually catch up with demand. So watch the earnings reports from mining companies; that will be your “canary in the coal mine” early warning system.
Right now, these ETFs aren’t the only bullish call on commodities. “Bond king” Jeff Gundlach has said on several occasions in recent months that commodities are the best bet in the financial markets.
On Apple, cobalt and socially responsible investing
Making investment recommendations isn’t my overarching goal in writing. It’s to educate investors and help raise their potential to reach financial goals. But one thing my posts can’t do is to make you feel good every week, as much as I’d like to. Investing is about compromising between potential reward and risk.
I applaud Apple for making the choice to go for more humanely sourced cobalt, even if it may be for optics, and the truth is more about locking up vital supplies for the future. And I hope more companies follow its path. The Apple products in my pocket, my kids’ pockets and in my home are ubiquitous parts of our lives. Maybe yours, too.
This conflict — between the Apple products we love and wartorn regions that help produce them — is obviously much harder to make sense of than the reward vs. risk of investing in commodities. It is becoming equally compelling to many investors.
In the past week alone, similar headlines show that the social consequences of investing are only going to increase. In addition to Apple’s news, we had major asset managers like BlackRock saying they will begin a dialogue with gunmakers in which they own stock, because of the latest school shooting, and Warren Buffett being asked on CNBC whether he supported the decision by many corporations to discontinue discounts given to members of the National Rifle Association. Buffett does not support “imposing my own views on 370,000 employees and a million shareholders.”
The Wakandans of Black Panther, as it turned out, discovered conflicts that they didn’t even know they had. But they moved to remedy them, which is what superhero movies are all about.
You can invest today in commodities, and relative to other spots in the market right now, I think, have a decent chance of realizing financial gains. Beyond that, though, you are on your own. And that’s the way it should be. An investment advisor should be able to find investments that suit your portfolio if you want it to have a socially responsible component, but they can’t be the one to define that responsibility for you.
I’ll leave off with a quote that I wish was from a fantasy movie but was actually from an exposé about cobalt mining in DRC by The Washington Post.
“He sat next to a series of small food stalls, stout squares of discarded mining sacks stretched over sticks, where a digger could buy a bread roll for 100 Congolese francs, equal to about 10 cents. The bread came with a free cup of water. ‘You eat what you make,’ Mboma said finally. And eating would have to wait.”
— By Mitch Goldberg, president of ClientFirst Strategy
Shanghai metal prices dip after Fed testimony, weak China data
(Reuters) – Shanghai metals mostly lost ground on Wednesday after new U.S. Federal Reserve Chairman Jerome Powell’s pledge to stick with gradual increases in interest rates boosted the dollar and growth in Chinese manufacturing slowed more than expected.
* SHFE COPPER: The most-traded April copper contract on the Shanghai Futures Exchange slipped 1 percent to 52,820 yuan ($8,341.36) a tonne by 0208 GMT and is set to end February at around the same level it started the month.
* LME COPPER: Three-month copper on the London Metal Exchange inched up 0.1 percent to $7,028 tonne, having closed down 1.3 percent on Tuesday.
* OTHER METALS: Shanghai zinc , nickel and lead were down 1 percent, 0.3 percent and 1.3 percent, respectively, with only aluminium in positive territory, rising 0.4 percent.
* USD: The dollar stood near a three-week high against a basket of currencies on Wednesday, after Powell’s upbeat views on the economy bolstered bets on further Fed interest rate hikes this year. A stronger dollar makes metals more expensive for holders of other currencies, weighing on prices.
* CHINA: Growth in China’s manufacturing sector in February slowed more than expected to the weakest in over 1-1/2 years as the Lunar New Year holidays disrupted business activity and tougher pollution rules curtailed factory output.
* ALUMINIUM: The U.S. Commerce Department said on Tuesday it had made a final determination that imports of aluminum foil from China are being sold in the United States at less than their fair value and producers are benefiting from subsidies from Beijing.
* NORNICKEL: Russian billionaire Vladimir Potanin’s Cyprus-based firm Whiteleave, aluminium giant Rusal and Roman Abramovich’s Crispian have agreed to delay a sale of a 2 percent stake in Norilsk Nickel by Abramovich to Potanin, a lawyer for Whiteleave said.
* SCOTIA: Canadian lender Bank of Nova Scotia said on Tuesday it would keep its ScotiaMocatta metals trading business, ending months of speculation that it could be sold.
Oil prices fall on weak Asian industry data, rise in U.S. crude stocks
TOKYO (Reuters) – Oil prices fell on Wednesday as weak Chinese and Japanese industrial data triggered concerns of an economic slowdown that could lower oil demand, and as an industry data report showed an increase in U.S. crude stockpiles amid soaring output.
U.S. West Texas Intermediate crude CLc1 was down 31 cents, or 0.5 percent, at $62.70 a barrel by 0446 GMT, after falling 90 cents in the previous session.
Brent crude LCOc1 was down 40 cents, or 0.6 percent, at $66.23 a barrel. On Tuesday, Brent fell 87 cents to $66.63.
Traders said oil prices declined on concerns of a slowdown in the global economy after China reported on Wednesday that factory growth in February was at its lowest since July 2016.
China is the world’s second-biggest economy and the biggest importer of oil after overtaking the Unites States last year. Crude oil demand is highly correlated to economic growth.
While China’s week-long Lunar New Year holiday this month disrupted business activity, traders also pointed to tougher pollution rules that curtailed factory output.
In Japan, the world’s third-largest economy, industrial output in January took its biggest tumble since a devastating earthquake in March 2011, highlighting a weakening in demand and a build up of inventory.
In the United States, the world’s biggest oil consumer, rising crude stockpiles weighed on prices.
Data on Tuesday from the American Petroleum Institute showed that crude inventories rose by 933,000 barrels in the week to Feb. 23, to 421.2 million barrels.
Refinery crude runs dropped by 209,000 barrels per day (bpd), the API data also showed, implying a drop in demand for feedstock crude. Gasoline stocks rose by 1.9 million barrels.
Official data from the U.S. Energy Information Administration (EIA) is due out later on Wednesday.
Soaring U.S. production has pressured oil prices at a time when the Organization of the Petroleum Exporting Countries (OPEC) and Russia have reduced output to support prices.
“Climbing U.S. production continues to weigh on the market as traders fear that the OPEC output cuts will be nullified by the rising U.S. output,” said William O‘Loughlin, investment analyst at Australia’s Rivkin Securities.
U.S. crude oil production has risen by a fifth since mid-2016 to more than 10 million bpd C-OUT-T-EIA.
On Tuesday, International Energy Agency Executive Director Fatih Birol said the United States will likely overtake Russia as the world’s biggest oil producer by 2019.
The United States overtook Saudi Arabia, the world’s top crude oil exporter, late last year.