Precious Metals Weekly Round-Up: Gold Gains on US-China Tensions

Gold edged up on Friday (May 10) as tensions rose when US President Donald Trump hiked tariffs on Chinese goods during trade talks between the two power countries.

The yellow metal returned to its safe haven nature as investors became concerned that growing hostility was brewing between the US and China, keeping gold on track for a weekly gain.

“Tensions in the Middle East and also the trade disputes between the United States and China are supporting gold at the moment,” said Afshin Nabavi, senior vice president at MKS.

“But the market continues to be rangebound around US$1,275 on the downside and around US$1,292 on the upside. We have been having quite a bit of resistance around the US$1,290 level,” he added.

On Friday, market watchers reacted to the US raising levies to 25 percent for US$200 billion worth of Chinese goods, with Beijing declaring that it will strike back.

The tariff hike was delivered in the midst of two days of talks between top US and Chinese negotiators.

Despite the tensions and resulting volatility, stock markets continued to rebound.

“Stock markets are rebounding despite Donald Trump’s tariffs on US$200 billion worth of Chinese imports, confirming that investors are still trying to keep alive the bullish sentiment,” noted Carlo Alberto De Casa, chief analyst with ActivTrades.

As of 9:08 a.m. EDT Friday, gold was at US$1,286.40 per ounce.

Meanwhile, silver was relatively steady on Friday, hovering just below the US$15 per ounce level and still keeping an arm’s length from the psychological level of US$16, which many industry experts thought it would see by now. As of 9:26 a.m. EDT, the white metal was trading at US$14.74 per ounce.

As for the other precious metals, platinum managed to climb just under 1 percent for the week and made gains of 0.53 percent on Friday. As of 9:15 a.m. EDT, the metal was trading at US$855 per ounce.

For its part, palladium climbed just under 2 percent on Friday after falling in the previous sessions.

The metal continues to be supported by demand, but investors have lost some of the interest they held in the previous quarter. As of 9:17 a.m. EDT, the metal was trading at US$1,296 per ounce.

Precious metals top news stories

Our top precious metals stories this week include two interviews from the Mines and Money New York event, as well as a report on how platinum-group metals (PGMs) production saved Sibanye-Stillwater (NYSE:SBGL,JSE:SGL) from a quarter that included a five month strike.

1. Sprott: Investors Should Use Gold as a Diversification Strategy

Peter Grosskopf, CEO of Sprott (TSX:SII,OTC Pink:SPOXF), addressed where gold stands in a presentation at Mines and Money New York last week, speaking about what a tough month it has been for gold producers, but reassuring investors of the importance of holding the yellow metal.

In an interview at the sidelines of the show, he spoke further about why investor sentiment around the gold space is at an all-time low and what he believes is currently affecting yellow metal prices.

“I don’t think I’ve seen (investor sentiment) any worse,” he said. “It’s not just that gold has been lackluster compared to the other global financial markets. It’s also that there have been some changes in asset management, which have made sector funds like gold very unpopular.”

2.IAMGOLD CEO: Free Cash Flow is What Investors Want

Stephen J.J. Letwin, CEO of IAMGOLD (TSX:IMG,NYSE:IAG), tackled the gold space in a presentation at Mines and Money New York last week, speaking about a market that’s been plagued for years by low prices and lack of exploration (even with total exploration growing 19 percent last year).

He spoke further to the Investing News Networkabout what the future may bring for gold and why he is a fan of mergers and acquisitions within the gold space.

“The fact that gold prices have sort of stayed in the US$1,250 (per ounce) range for the last six years doesn’t do a lot to excite people. So I think there’s investor fatigue, and the bottom line is there’s probably too many of us relative to the fact that the capital pool is shrinking,” he said.

3. PGMs Production Saves Sibanye During Strike-plagued Q1

Sibanye-Stillwater released its first quarter results for 2019 on Thursday (May 9), noting that an increase in PGMs production helped the miner weather a quarter that was plagued by a five month strike.

The strike, which ended on April 17 and was led by the Association of Mineworkers and Construction Union (AMCU), largely targeted the company’s South African gold operations, causing a decrease in production of the yellow metal.

“Q1 2019 was an important period, (with Sibanye) successfully navigating complex operational and financial challenges and achieving some significant milestones,” the company said in a press release.

Also in the news

Also making news this week was Lonmin (LSE:LMI,OTC Pink:LNMIY), which released its Q2 2019 results on Friday, noting that both low morale and continuous management turnover negatively impacted the PGMs miner’s operational performance.

The company also stated that the extended timeline to close the Sibanye-Stillwater transaction along with safety stoppages and power outages by state electricity utility Eskom affected the quarter. Despite some setbacks, Lonmin’s profits were up year-on-year.

“Lonmin generated unaudited operating profit of US$70 million in the first six months of the year, compared to an operating loss of US$32 million in the prior year period. This was driven by higher PGMs basket prices and a favourably weaker rand/dollar exchange rate,” stated CEO Ben Magara.

Earnings before interest, tax, depreciation and amortization were US$78 million, compared to a loss of US$26 million, and net cash was US$71 million, compared to US$17 million this time last year.

In terms of production, mining output was down 7.7 percent, resulting in 4.3 million tonnes; total metals-in-concentrate platinum production was down 10.3 percent, coming in at 276,020 ounces.

Additionally, Bloomberg reported that competition is brewing for the acquisition of AngloGold Ashanti’s (JSE:ANG) remaining assets in South Africa. At one point, Sibanye was the frontrunner for the mines, but now Harmony Gold (JSE:HAR) and Chinese-backed Heaven-Sent SA Sunshine Investment have thrown their hats into the ring.

“There should be three interested parties: Harmony, Sibanye and Heaven-Sent,” Bernard Swanepoel, former CEO of Harmony, said. “I really can’t see any outsiders participating.”

While Sibanye remains the top choice, it is weighed down by debt and its takeover of Lonmin, which, as previously mentioned, has been prolonged by a legal challenge from a labor union. These circumstances have left the door open for either Harmony or Heaven-Sent to be more confident choices in purchasing the South African assets.

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

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.