Editorial: Gold, copper declines start to bite

The dog days of summer are upon us in North America, and this year for the mining industry the biggest dogs are gold and copper — the two leading precious and base metals, which have seen precipitous price drops in the face of a strong U.S. dollar and U.S. Treasuries in mid-2018.

As we go to press on Aug. 14, the spot price for gold has slumped below the long-held US$1,200 per oz. support line, and rests at US$1,194.10 per oz., after regularly plowing through a series of one-year lows. That’s down US$46.90 from 30 days ago, and off US$87.50 from a year ago.

The signs don’t look good in the short-term, with gross Comex short positions for gold at a record high in mid-August and the trade-weighted U.S. dollar at a 13-month high — propelled even higher in recent weeks, as Turkey’s economic and lira crisis deepens.

(Turkey was the second-highest, official-sector gold buyer, behind only Russia, in the first half of 2018, though the buying has slowed of late.)

Meanwhile, the rest of the precious metals group has slumped. Spot silver is at US$15.01 per oz., with Comex silver shorts and inventories both at all-time highs, little more than 11 months since silver traded above US$18 per ounce. Platinum is trading at US$800 per oz., despite Impala Platinum unveiling plans to slash 13,000 jobs over the next two years. Palladium is at US$892 per ounce, as Norilk Nickel ramps up production of both platinum and palladium — both up 5% so far this year.

Oil prices have also seen downward pressure, as continued trade tensions between the U.S. and China suggest future cooling in global economic growth.

For the time being, gold and silver enthusiasts are comforting themselves with the argument that prices for both metals will recover later this year, as what they see as “inevitable” Federal Reserve rate hikes lower the value of the U.S. dollar, with gold and silver prices getting a little extra juice from a short-covering rally. (Though, of course, this may well be already baked into the current precious metal prices.)

Over in the copper space, the picture is equally uninspiring, with spot prices at US$2.72 per lb. at press time, or a 13-month low. Prices had been well above US$3.20 per lb. as recently as early June before tumbling to US$2.80 per lb. for several weeks, and taking another leg down at press time.

The five-year price chart for copper is particularly galling, with US$2.50 per lb. looking like another major support level ready for breaching.

Weaker-than-expected economic growth in China — the largest copper consumer — is seen as the culprit in copper’s price decline, made worse by the possibility of a strike being averted at the large Escondida copper mine in Chile.

The big picture for copper’s supply and demand is still compelling, however.

In a new study, S&P Global Market Intelligence found that while the US$26.6 billion allocated to copper exploration over the past decade is more than double the US$12.4 billion spent over the preceding 18 years, this higher spending has so far failed to bring corresponding discoveries, compared with the previous period, with S&P finding that only 140 million tonnes of copper were defined in 29 discoveries over the last decade, versus 862.8 million tonnes in 191 discoveries in the preceding 18 years.