Metals Weekly Round-Up: Fed’s New Stance Benefits Gold

Base Metals

Gold strengthened as the US dollar pulled back on news that the Fed is taking a dovish stance that should prolong a low interest rate environment.

After two weeks of losses, gold was poised to end the last week of August up almost 2 percent, reversing a brief slump that saw the metal dip to US$1,917 per ounce on Wednesday (August 26).

The yellow metal strengthened as the US dollar pulled back on news that the Fed is taking a dovish stance that is expected to prolong the current low interest rate environment.

The other metals were a mixed bag, with silver on track for second week of gains, benefiting from its dual nature as a precious and industrial metal.

In a much-anticipated Thursday (August 27) address, US Federal Reserve Chair Jerome Powell said the central bank will try to achieve an average inflation level of 2 percent over time, meaning it may be higher or lower than that amount at times.

“Many find it counterintuitive that the Fed would want to push up inflation,” Powell said at the Fed’s annual Jackson Hole symposium, this year held online due to COVID-19. “However, inflation that is persistently too low can pose serious risks to the economy.”

In the hours following, gold rose from US$1,917 an ounce to a five day high of US$1,966.70.

“An environment where interest rates are low and inflation is gradually picking up works perfectly for assets like gold,” UBS (NYSE:UBS) analyst Giovanni Staunovo told Reuters.

He went on to say his firm expects the currency metal to again test the US$2,000 range, possibly moving as high US$2,300.

At 10:46 a.m. EDT on Friday (August 28), an ounce of gold was trading for US$1,958.26.

Silver has been trending higher since pulling back in mid-August. The white metal has now added 10 percent to its value since August 11, and is working towards the US$30 per ounce threshold.

Even though silver remains shy of its year-to-date high of US$29.14, achieved on August 10, the present price environment is very supportive of pure-play miners, which according to Metals Focus need a price point of at least US$19 an ounce to be economical.

Up 53 percent from January, and more than 100 percent since the March slump, silver is expected to show improved resilience as industrial demand strengthens.

An ounce of silver was priced at US$27.63 as of 11:50 a.m. EDT.

Platinum lost some ground mid-week, hitting a monthly low of US$905 per ounce. Early in August, the metal had been approaching US$1,000 territory, but retreated.

Despite the recent price pressure, analysts are anticipating a rally later in the year.

A release from the World Platinum Investment Council touts increased end-use applications for the metal, with the most prominent being an uptick in use as a coating to prevent corrosion or to boost electroconductivity and heat resistance.

At 12:02 p.m. EDT on Friday, an ounce of platinum was selling for US$925.

Palladium faced volatility this session, but still held above US$2,000 an ounce. After steadily moving higher in July, the autocatalyst metal has faced headwinds, shedding 7.1 percent month-over-month.

Although prices have slumped in August, the metal is well above its January value of US$1,967 per ounce. Palladium was valued at US$2,601 at 12:10 p.m. EDT on Friday.

The base metals managed to squeak out a gain, with the exception of lead. Climbing as high as US$1,984 per tonne mid-week, subsequent pressures weighed the lead price down. This morning lead was priced at US$1,954.

Copper posted a strong gain, starting the session at US$6,579.50 per tonne; it pulled back slightly to end the week at US6,602.

The red metal is also benefiting from the Fed’s policy shift and renewed optimism that COVID-19 lockdowns will lead to a smaller demand decline that expected.

According to an S&P Global report, copper consumption is now expected to fall by 3 to 4 percent year-on-year, less than a 4.6 percent decline in global GDP.

“In terms of metals markets, demand is outperforming broader GDP metrics,” it reads. “High China and low retail and services exposure is leading to relative resilience in demand.”

Chinese demand, which accounts for half of the metals market, has been robust and will likely prop the market up in the months ahead. Copper was priced at US$6,602 Friday.

Zinc felt resistance this week, pulling the metal off its five day high US$2,462 per tonne. Prices then settled in the US$2,450 range. Zinc has added 38 percent to its value since January, and Friday saw prices sitting at US$2,455.

Nickel hit its year-to-date high this week when it rallied from US$14,862 per tonne to US$1,5120. The surge marks the metal’s best showing since November.

Since falling to a low of US$11,055 in mid-March, nickel has climbed 36.7 percent. As of Friday morning, nickel was valued at US$15,120.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

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