Joe Mazumdar: Metals Hit by COVID-19; Gold, Uranium the Winners So Far

The markets have seen high levels of uncertainty during the first few months of 2020, with commodities across the board impacted to the upside and downside.

“We’ve got a puzzle going, we don’t know how this is going to look at the end — we are all sitting there with a lot of uncertainty,” Joe Mazumdar of Exploration Insights said at a recent Metals Investor Forum webinar.

During his 20 minute presentation, Mazumdar gave an overview of what’s been going on in China and how the Asian country is now more linked to the global economy than it was 15 years ago during the SARS outbreak.

He then moved on to the US, saying that without a vaccine the approaches used to mitigate the effects of COVID-19 are rudimentary, including the well-known social distancing and self-isolation practices.

“This implies a big reduction in economic activities,” he explained. “The US has seen 26 million lost jobs over five weeks — that’s 16 percent of the workforce.”

Mazumdar also talked about America’s monetary response to the coronavirus, which has been to reduce interest rates to almost zero.

“If we look at the US balance sheet, we are now at US$6.5 trillion in reaction to the COVID-19 crisis, a 44 percent rise,” he said. “Gold’s relationship to a rising balance sheet has been mixed … but the better relationship seems to be the broader equity market.”

Mazumdar said the US leads in global stimulus packages, but it is not the only nation that has dedicated a significant amount of money to stimulus. As examples he gave Japan and the UK, which have injected the most as a proportion of their GDPs.

COVID-19’s impact on commodities

Gold price supported, gold stocks outperforming

Looking at the impact of the coronavirus on commodities, Mazumdar said that year-to-date uranium and gold have been the best performers.

“Volatility has skyrocketed, and the slowdown in economic activity has impacted a lot of commodities — not just base metals, the main one has been crude oil,” he said. “But the push for safe haven assets has pushed gold and also Treasuries.”

Mazumdar explained how that volatility has helped gold prices reach their highest point this year, above the US$1,700 per ounce level.

“Gold is also up in multiple currencies, which is a positive sign, and not only in consuming nations like India and China, but also in producing nations, the biggest one being the South African rand,” he said.

He also talked about equities and how they are displaying leverage to gold.

“If we look at gold equities as proxies for the GDXJ, they have outperformed gold since June 2019,” he said. “Since the middle of March, the gold price is up 17 percent while the GDXJ is up 70 percent.”

Base metals fall, more volatility to come

The coronavirus has not been kind to base metals, which have been declining since November 2019 due to the trade war between the US and China and now amid a fall in economic activity.

“China is the largest consumer, so the demand for global commodities was already reducing before the pandemic hit North America, ” Mazumdar said. “We’ve seen a recent rebound, but I think going forward is going to be highly volatile.”

Uranium helped by mine supply disruptions

Mazumdar said uranium has been performing well this year, supported by supply disruptions that have helped offset weaker demand.

“About 21 mines have been disrupted, but importantly not only are these the mines that are marginal at low uranium prices, but also the lower-cost mines are shutting down just because of the COVID-19 pandemic,” he said.

Exploration and financing activity on the decline

In addition to production disruptions, the lockdowns driven by the coronavirus pandemic have also impacted exploration activity.

Mazumdar is still waiting to see if this will continue into the summer field season in the northern hemisphere, and said the potential requirements of self-isolation could underpin longer work periods for personnel.

In March, there was also a big reduction of financing activity compared to the last two years, with the preference being for quality stocks.

“Over the past two years, the month of March saw about US$1 billion worth of equity financings, which counts for about 150 to 200 transactions, while in 2020 we saw US$250 million,” he said.

However, Mazumdar pointed to several precious metals transactions seen in April, which accounted for C$316 million. “Quality finds a way to access capital during this times,” he said.

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