Engineering & Mining Journal

SEP 2018

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72 E&MJ • SEPTEMBER 2018 www.e-mj.com MARKETS Gold fell to a 20-month low last month. The World Gold Council said it believed the gold price would bounce back and it did for now. Consumer demand is likely to be supportive in the second half of 2018. And, short positioning could quickly re- verse should one of the many current macroeconomic risks materialize. During August, gold prices fell below $1,200/ounce (oz) — an important tech- nical support level — for the fi rst time since early 2017. Gold prices started the month at $1,220/oz, dropped be- low $1,180/oz during the middle of the month before recovering to a little more than $1,200/oz by the end of the month. The World Gold Council cited the strength of the U.S. dollar as the main reason for declining gold prices. The dol- lar's strength has been one of the most important drivers of gold's performance this year. Gold speculative positioning in future markets is increasingly short. The Chica- go Mercantile Exchange (CME) managed money net long positions stand at a re- cord low since 2006. Furthermore, net combined speculative positions, which go back further, are negative for the fi rst time since December 2001. In recent years, a large increase in short positions has been followed by a sharp rally in gold. And while net shorts were more prevalent in previous decades, there have been structural changes that make these positioning levels different and likely short lived, according to the World Gold Council. Among them are: • Economic development in emerging markets (EM), especially China and In- dia, has increased and diversifi ed gold's consumer and investor base; • For almost a decade, the expansion of EM foreign reserves has resulted in net gold demand by central banks — about 500 metric tons (mt) per year — as a source of return, liquidity and diversifi cation; • Miners have not only reduced forward sales, but also consistently de-hedged their cumulative positions since 2000; and • The opportunity cost of holding gold is considerably lower as nominal and real interest rates are approximately 3% be- low their average level during the 1990s. But a bounce back in the gold price can only be sustained if there are funda- mental reasons to encourage consumers and long-term investors to seek exposure to gold. A period of heightened geo- political risk with the potential to im- pact the global economy could, accord- ing to the World Gold Council, be sup- portive of gold even if the dollar were to strengthen. Gold could trade lower if the U.S. dollar increases its strength, but in light of the positioning in the U.S., and increased interest from buyers in China and India, the risks seem skewed toward higher gold prices. For more information, visit www.gold.org. Gold Slips Against a Strong Dollar in August Gold and silver prices provided by KITCO Bullion dealers (www.kitco.com). Platinum group metals prices provided by Johnson Matthey (www.platinum.matthey.com). Non-ferrous base and minor metal prices provided by London Metal Exchange (www.lme.co.uk). Iron ore prices provided by Platts Iron Ore Index. Currency exchange rates were provided by www.xe.com. (August 31, 2018) Precious Metals ($/oz) Base Metals ($/mt) Minor Metals ($/mt) Exchange Rates (U.S.$ Equivalent) Gold $1,200.80 Aluminum $2,112.00 Molybdenum $26,000 Euro (€) 1.161 Silver $14.51 Copper $6,019.00 Cobalt $64,500 U.K. (£) 1.287 Platinum $792.00 Lead $2,062.00 Canada ($) 0.765 Palladium $980.00 Nickel $13,010.00 Iron Ore ($/dmt) Australia ($) 0.721 Rhodium $2,390.00 Tin $19,025.00 Fe CFR China $67.16 South Africa (Rand) 0.067 Ruthenium $260.00 Zinc $2,504.00 China (¥) 0.147

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