Editorial: Gold, copper reach new highs

The sustained strength in most precious and base metals this year reached breakout levels in September, as a weakening U.S. dollar and renewed optimism over Chinese metal demand pushed metal and mineral prices to new highs.

At press time, the spot gold price had surged to an 11-month high of US$1,336.60 per oz., up US$47.90, or 3.7%, in the last 30 days, up 9% in the last two months and up 17% this calendar year. Gold briefly touched US$1,356.60 per oz. on Sept. 8, before pulling back over the next two days, and seeming endling a two-month run-up from the US$1,211 per oz. level on July 10.

While the U.S. has enjoyed soaring stock markets, a growing economy and falling unemployment levels since Donald Trump was sworn in as U.S. president, the U.S. dollar has steadily lost strength throughout 2017, and has seen an accelerated decline since July, which observers attribute to the U.S. Federal Reserve not raising interest rates and gridlock in Washington, D.C. — which derailed health care reform and threatens to scuttle planned tax cuts. The U.S. Dollar Index is down more than 10% this year to 91.861 at press time.

Gold’s role as a safe-haven asset has once again come into play, as the standoff between North Korea and the U.S. and its allies over North Korea’s nuclear missile program reaches new levels of tension, and the prospects of military confrontation become less far-fetched. Gold prices gained US$5 to US$10 per oz. after major North Korean missile and nuclear tests.

This September, gold analysts are arguing that the good news for gold has already been baked into the price, and point to US$1,360 per oz. as a new ceiling for the gold price for the rest of the year, even if U.S. Fed rate hikes are put off over and over again. An introduction of a goods and services tax in India is also seen as suppressing gold demand in the Indian jewellery sector for the rest of the year, in what is usually a period of strong gold demand.

With many proposed and operating gold mines in recent years using a US$1,200 per oz. base case for economic decision-making, today’s gold price in the US$1,350 per oz. range is one a lot of miners would be happy to see sustained in the months ahead, particularly Canadian operators, who have benefitted from the weaker Canadian dollar since the oil price crash in the latter half of 2014.

Silver prices have closely tracked gold prices during their recent run-up, with the spot price at US$17.83 per oz. at press time, after peaking at US$18.21 per oz. on Sept. 8 — still below prices seen as recently as April, and well off from the 52-week high of US$19.84 in September 2016.

This renewed strength is also seen in platinum and palladium, which have risen to US$1,002 per oz. and US$933 per oz. at press time.

The weakening U.S. dollar and relatively strong imports into China of crude oil, iron ore, metallurgical coal, thermal coal and copper in August have helped support prices of all five commodities — especially iron ore and thermal coal, which have seen price increases exceeding 40% in recent months. Chinese demand for iron ore weighs particularly heavily on its price, as the country imports two-thirds of all seaborne iron ore.

Spot copper prices have risen from US$2.50 per lb. in May to trade above US$3 per lb. since Aug. 29, peaking at a three-year high of US$3.12 per lb. on Sept. 4.

Base metal analysts argue that metal prices have had a good run and the rally is due to taper off, as is the rally in major base metal miners, particularly in the copper market, where prices are driven increasingly by speculators, rather than market fundamentals. TNM